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Friday, March 27, 2015
Release
The worldwide Oil & Gas Industry is in a momentous transition. Thanks to a constellation of unprecedented forces, we are shifting from “Big Oil” to “Smart Oil” – from a focus on volume to a focus on value. Today, Oil and Gas capital projects of every type face a new performance imperative. They must deliver unprecedented levels of output, safety, efficiency, and effectiveness – at the same time leveraging the latest technology and the most inspiring leadership.
Now that oil prices have declined, the industry needs to change its ways by adopting a “Cost Culture”. Companies in virtually all sectors of the oil, gas and chemicals (OGC) industry worldwide are going to have to plan and manage their projects for greater capital productivity, something they weren’t doing particularly well before the price-drop, and along the way create a cost culture inside their companies.
“Strong energy prices in recent years have allowed companies to delay putting an emphasis on project management, as they focused instead on the urgent need of achieving greater throughput. But that was then and this is now,” said Dennis Cassidy, managing director at AlixPartners and co-head of the firm’s global Oil, Gas and Chemicals Practice. “In the current environment of falling prices, plus increasing geologic and technical challenges, a new focus on building a ‘cost culture’ into each and every project is mandatory.”
According to survey conducted by AlixPartners, with 250 industry executives, only 30% had explicit return-on-capital goals for projects before the crash in oil prices. Perhaps even more surprising is, just 12% believe their companies are any better than their competitors at project execution. Disturbingly, only 19% of North American firms could claim they finish projects on budget.
Overall, when asked to name ways in which they are most challenged in keeping projects on budget, the most common reason (by 39% of all respondents) was “company culture isn’t focused on project management.” Prior to the crash in prices, the most important focus for improving capital productivity was “improving throughput”. Only 30% of those surveyed formally identify and quantify project risks in advance of undertaking new projects.
According to the survey results, as projects grow more complex, many companies have attempted to boost returns, not by tightly controlling costs internally, but by looking outward, toward such things as developing partnerships. For instance, when asked to list the most important criteria used in selecting new capital projects, 60% in the survey cited “partner/syndicate relationships”.
Professor George Jergeas from the University of Calgary made a comment and shared his experience drawing attention to some big-picture priorities that are easily overlooked, and serve as a powerful reminder of why projects fail or succeed: Projects face three major kinds of risks – operational (internal and organizational factors), strategic (corporate objectives and goals), and contextual (market and societal forces). All three must be managed carefully, but it’s particularly important to budget and plan for contingencies against the operational risks.
Complex and challenging projects will always be confronted by change, but how we deal with it can make all the difference. When challenges arise, it’s critical to respond in a thoughtful way that doesn’t compromise the process. “You can see the lack of empowered decision-makers in affected organizations. For the first week after the disaster or controversy, nobody does anything.” he says. Jergeas recommends maintaining an awareness of the big picture to help keep a project steady, and staying honest about your accountability and responsibility as a leader.
All major O&G companies have wasted money in some form or another during the boom. But now is the time to divert from imprudent spending and correct the mistakes. Energy companies should be more discriminating in evaluating new prospects and focus on cutting down the extravagant spending. Those that move quickly and correct these issues will be the ones who come out of this oil plunge in the best shape.
What is more than obvious, the Oil & Gas industry desperately needs not only to adopt new “cost culture” and focus on proper planning and thorough evaluation of all projects, but also more empowered leaders among the Senior, Operations and Project Executives. The companies within the Oil & Gas sector need to further develop and strengthen their strategic partnerships, share knowledge and best practices, and pull together in order to not just survive, but also thrive in the current market environment.
BIS Group’s 6th Annual “Advanced Project Management for Oil & Gas Industry” conference will bring together decision makers and leading professionals from all over the world who are highly involved in management of oil & gas projects. The attendees will explore latest updates relating to the oil and gas pricing trends, new methods and models for the new environment. This Conference will provide an avenue for participants to share industry best practices, innovative techniques, and case studies. The attendees will learn how to implement excellent operational and leadership programs to effectively sustain in today’s highly challenging world. The conference topics are tailored address the unique needs of the current Oil & Gas industry.
“…This summit is a must for any Oil & Gas Operations or Project Executive interested to maximize project value…” – Dave Guerra (CEO of Corpus Optima), Conference Chair
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