Spotlight on oil and gas megaprojects
Spotlight on Megaprojects kicks off a series that explores capital projects in the oil and gas industry. We researched the performance of 365 oil and gas megaprojects and found that 64% are facing cost overruns and 73% are reporting schedule delays. Take a closer look at why this happens and what we can do to help.
As part of the study, we identified 365 projects with a proposed capital investment of above US$1b in the following industry segments: upstream, LNG, pipelines and refining and reviewed project performance in the oil and gas industry across the project life cycle, before and after the final investment decision.
Evaluating the performance of megaprojects
We found that cost and schedule overruns were common in all industry segments and regions, though certain segments and geographies perform better than others.
Noting the importance of project delivery post-FID, we also analyzed a sample made up of the largest 20 post-FID projects. Sixty-five percent of the projects analyzed were facing cost overruns with an average escalation of 23% from the approved FID budget.
Our findings are largely aligned with the observations of the Independent Project Analysis (IPA) 2011 industry study. In that study, the agency found that 78% of upstream megaprojects faced cost overruns or delays, a deterioration from 2003, when 50% of the projects were over budget or late.
The high levels of overruns in oil and gas megaprojects identified in our research are not particular to the industry and have been identified in other sectors, including government, real estate construction, mining, and power and utilities.
However, these repeated failures do raise serious questions as to the industry’s ability to develop accurate, unbiased FID budgets/schedules and subsequently to deliver to them. Noting the impact of poor megaproject delivery on a company’s success, in the next section we outline the typical root causes of project failure.
Root causes of cost overruns and delays
We’ve identified five root causes of overruns and delays that we will explore further in upcoming reports.
Portfolio and project commercial context
How we can help
We have proven industry skills covering the full life cycle of a capital project, from inception and setup of the commercial delivery structure through feasibility studies and into project delivery, construction and commissioning.
Distribution of investment by region (US$)
Cost variance distribution - Post-FID projects