Petroleum Africa
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Friday, August 15, 2014
Costs on the majority of industry “megaprojects” are time after time exceeding budgets according to a new report by EY. The report – ‘Spotlight on megaprojects’ examines the performance of 365 megaprojects and the impact on the oil and gas industry of these overruns. Of the megaprojects in Africa, 67% of them exceed their budgets.
The report said that on average, current project estimated completion costs were 59% above the initial estimate. In absolute terms, the cumulative cost of the projects reviewed for the report has increased to $1.7 trillion, which is $500 billion higher than original completion costs.
Axel Preiss, EY’s Global Oil & Gas Advisory Leader, says: “While the report looks at current industry performance, longer-term industry outlooks suggest that project delivery success is actually decreasing, especially in certain segments of the industry, such as deepwater, where complexity and risk are considerably higher. Poor execution can potentially result in the project being economically uncompetitive and negatively impacting an organization’s overall financial results.”
Not only are there cost overruns but delays in execution are increasing also. Geographically the Middle East leads the way with both cost and delays; however, in terms of project delays Africa is not far behind. The Middle East came in at the top with 87% of projects experiencing delays, while Africa came in second with 82% of projects on the continent running behind schedule.
Project costs are significantly underestimated; the report went on to say that according to research in the post-Final Investment Decision (FID) stage, 65% of the projects analyzed were facing cost overruns, with an average escalation of 23% from the approved FID budget. The reasons for this are varied and may be impacted by the geographic location of the project.
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