Project efficiency in oil and gas

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Many industry capital projects cost too much to be commercially viable unless oil prices rise considerably. At the same time, the market and investors expect oil companies to grow or maintain production levels. Regardless of oil price, new projects will need to continue to be built.

Oil price volatility has increased the pressure on project teams trying to deliver on budget. As a result, projects need to be more successful at meeting budget and schedule targets – likely with lower budgets. Oil companies will need to either shrink production as projects are decommissioned and not replaced, or find a way to execute their project development pipeline for significantly lower cost.

The good news

There is room for efficiency to be driven into the industry. Research suggests that the industry has declined in efficiency by 55%, while other industries have increased in efficiency by more than 50%. This decline in efficiency coincided with the rising oil price and is linked to increased complexity and decreased standardization, more company specifications, growth in LCI-related work and an increase in safety man-hours.

Where does inefficiency exist on projects?

EY - Where inefficiency exists on oil and gas projects

How to engage the “total” project organization to drive out inefficiency?

To realize the full range of improvement opportunities, clients must engage with the key project stakeholders (EPC and major suppliers) outside of their own project organization. An effort to improve existing relationships between the operator and EPCs is critical to develop trust and a “one team” mentality. Equally, there is a need for operator teams to recognize the impact of their behavior on EPC efficiency, man-hours and therefore project cost.

A workable approach with huge potential impact

A workable model to identify and eliminate inefficiency is to have an Independent third party positioned between client and contractor operating as an intermediary, working with both parties to identify, quantify, implement and verify savings opportunities.

We have experience operating on behalf of the operator, the EPC, or both to identify, verify and implement efficiency opportunities using our extensive Performance Improvement experience. Our expertise and independent position is best applied in the interaction (between EPC and operator) and the internal systems of the EPC on the project — helping them increase efficiency and reduce contract size, whilst maintaining overall profits.

To make sure continued value is retained long after we’ve gone, we embed the following principles into our projects to align key stakeholders and empower project teams to drive efficiency.

  1. Define a clear improvement agenda
  2. Empower project management
  3. Support teams to solve their issues
  4. Capture results and spread knowledge