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OIL & GAS MEGAPROJECTS (TRACK RECORDS & IMPROVEMENT INITIATIVES) By: Engr. Seyi Omotowa

SHELL FLOATING LNG MEGAPROJECT (Circa US$12Billion)

Megaprojects are an extremely large-scale investment project and are typically defined as costing more than US$1 billion and attracting a lot of public attention because of substantial impacts on communities, environment, and budgets. They live up to their reputations in many ways, including mega-size, megacost, mega-complexity, and mega-risk. They are engineering intensive, resource intensive, and fundamentally challenging to implement.

Megaprojects include bridges, tunnels, highways, railways, airports, seaports, power plants, dams, wastewater projects, Special Economic Zones, oil and natural gas extraction projects, public buildings information technology systems, aerospace projects, weapons systems and, more recently, large-scale mixed use waterfront redevelopments; however, the most common megaprojects are in the categories of hydroelectric facilities, nuclear power plants and large public transportation projects.

Experts estimate that globally about 150 megaprojects are ongoing in upstream oil and gas. Geographically, they are scattered throughout the world. There are such projects in Brazil, Australia, North Sea, Africa, Middle East and Canada, particularly in the oil sands.

A study of the performance of the past decade’s so-called megaprojects which cost average $3.5 billion in the upstream oil and gas industry shows a staggering 78% failure. This is a key finding cited by Edward W. Merrow, founder and CEO of Independent Project Analysis, Inc. (IPA), and a recognized expert on the development and execution of large and complex megaprojects.

He cautions that about four-fifths of all such megaprojects will flop unless the industry learns to adopt key lessons from the past; poor functional integration that characterizes upstream project organizations, which makes these complex projects much more sensitive to poor preparation, schedule aggressiveness, and loss of continuity in project leadership.

Projects throughout the process industries—oil and gas, chemicals, and minerals—have become significantly larger and more complex over the past decade or so. The underlying reasons for increasing project size and difficulty are understood—we are developing natural resources in progressively more difficult circumstances and terrains, simply because we have to. Moreover, the choice of oil and gas developments is influenced by the decisions of some large resource-holding countries to restrict or delay the development of some more easily accessible reservoirs.

In this updated analysis with a much larger sample of both oil and gas and other process industry megaprojects, the conclusion is quite different for oil and gas projects. While nonoil and gas development projects increased in size and difficulty, they maintained a success rate of approximately 50%. This rate of success is certainly not good, but at least it had not declined despite the much more difficult projects market. Meanwhile, the performance of oil and gas megaprojects collapsed; only 22% of these projects could reasonably be called successful, as they were absolutely first-rate: on-time, onbudget, excellent production rates.

While the successful projects were spectacularly successful, the other 78% were equally unimpressive with 33% real cost overruns, cost indices that averaged 1.37, and execution schedule slip of 30%. More importantly, a disappointing 65% of these projects experienced serious and enduring production attainment problems in the first 2 years after first oil or gas.

In Nigeria, Bonga FPSO Hull contract constructed by Samsung between 2001 and 2004 is an example of a successful project as it was first-rate: on-time, onbudget, excellent production rates till date. Our other Deepwater megaprojects are somewhere in between these two categories with 18%-35% cost overrun and schedule slip. We need to renew our efforts to improve on our performance measurements.

However, on a bright side the uptimes and oil production from all these offshore facilities from their 1st oil till date have been excellent (with some even exceeding their nameplate production capacities).

Companies worldwide are thus rethinking their large-scale projects strategies following in the wake of too many failures and problems.
© 2015 NAPIMS
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