Major oil and gas companies’ recent record of bringing large projects on stream within projected timeframes and budgets leaves much to be desired. Ernst & Young analyzed the performance of 365 megaprojects – those costing over $1 billion – and found 64% face cost overruns and 73% face delays. See Kashagan in Kazakhstan as one extreme example.
One particularly eye-popping figure highlighted in the report is the estimated $22.4 trillion cumulative global megaproject investment expected between now and 2035. This at a time when the majors face pressure to reduce capital expenditure amid dwindling profit margins and stagnant commodity prices.
The silver lining suggested by the analysts is that companies can do more to prepare for externalities like regulatory and policy shifts, while strengthening their internal project management capabilities, something I’m sure E&Y would be happy to assist them with.
”Clearly the external environment and regulatory- and policy-related changes are not as easily controlled as the internal project management-related issues, but the oil and gas industry can do significantly more to prepare for these issues so that their effects can be adequately managed within the project environment. …Companies can no longer rely on oil and gas price increases which in the past have masked many of the consequences of megaproject overruns. Unconventional discoveries have already had an impact on the economic viability of many megaprojects and securing capital is only going to become more difficult unless companies are able to consistently deliver on deadline and within budget.” – Axel Preiss, EY’s Global Oil & Gas Advisory Leader said in a statement
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