‘Upstream projects getting back on track after oil price slump’
Industry research group, Wood Mackenzie (Woodmac) has said emerging signs of improved execution suggest companies are getting it right after a period of dismal performance on upstream oil and gas projects.
A similar research conducted by Globaldata, had revealed that the Nigeria would add at least $8.4 billion per year on 249 oil and gas fields from 2018 to 2020, stressing that capital expenditure (capex) into oil and gas upstream in Nigeria will hit $25 billion in the next two years. Woodmac said on Tuesday that the oil and gas industry may have turned around its reputation for always delivering upstream projects behind schedule and over budget.
The report noted that the top 15 project blowouts of the last decade were a cumulative $80 billion over budget.The group stated that the successful execution of capital projects has become of crucial importance to upstream industry adapting to lower prices, adding that the recent downturn forced companies to critically evaluate and improve how they manage their major capital investments.
“The scale of underperformance was staggering. Surveying the last decade of project delivery, the average development started-up six months later than planned and $700 million over budget. That is a huge amount of value destruction,” Research Director at Wood Mackenzie, Angus Rodger.
The report identified a growing list of mid – to large projects that have been delivered on target over the past 12 months to include areas previously notorious for cost blowouts, such as the Arctic and Caspian.According to the report, examples of improved execution include deepwater (BP’s West Nile Delta and Atoll, Eni’s Zohr and Cape Three Points), LNG (Novatek’s Yamal), shallow-water gas (BP’s Shah Deniz Phase two) and subsea tie-backs such as Woodside’s Persephone and Wintershall’s Maria.
The report also lauded Shell for bringing on stream its deepwater Gulf of Mexico Kaikias field nearly one year ahead of schedule, noting that the development was not only a quick turnaround, but epitomises how the deepwater sector has – for now – transitioned to a simpler, lower-cost business model. Woodmac said six factors, that in most recent cases, combined to create better project execution included spare capacity through the supply chain, service sector collaboration and alignment on contracts, improved project management, greater corporate discipline, more pre-FID planning and reduced scope.
“Improved project delivery in recent years has in part been supported by Big Oil’s de-emphasis of mega-projects in the current environment. But this is not sustainable longer-term in an industry underpinned by large, cash-generative assets.“While there have been a few large-scale oil developments sanctioned in recent years, it is not many by industry standards. It is in the LNG space where there are clear signs companies are re-engaging with giant, capital-intensive projects. This includes new developments in Canada, Mozambique, Qatar, Papua New Guinea, Russia and Australia,” the group stated.
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