Capital Projects Suffer Significant Cost and Schedule Overrun 

EY Spotlight on Megaprojects explores performance of capital projects in the oil and gas industry. They researched the performance of 365 oil and gas megaprojects and found that 64% experienced cost overruns and 73% reported schedule delays. The average cost overruns across all regions was an astonishing 59%.

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EY analysed projects with a proposed capital investment of above US$1b in the following industry segments: Upstream, LNG, Pipelines, Refining and reviewed project performance in the oil and gas industry across the project life cycle, before and after the final investment decision.

Major Root Causes of Cost and Schedule Overruns

Internal Factors

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  • JV and relationship challenges

  • Access to funding

  • Poor portfolio management and changing risk appetite

Portfolio and Commercial

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  • Inadequate planning

  • Poor procurement of contractors

  • Aggressive estimates and optimism bias

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Project Development

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  • Ineffective project management

  •   Poor contract management

  •   Human capital deficit

Project Delivery

External Factors

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  • HSE risk and local content

  • Regulatory delay and policy uncertainty

  • Inadequate infrastructure

Regulatory Challenges

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  • Diplomatic and security issues

  • Financial and supplier market uncertainty

  • Civil and workforce disruption

Geopolitical Challenges

Ineffective data management underpins all above root causes 

Business case for change 

Poor Productivity

 

  • Not attracting enough investment

  • Financially unhealthy (1.8% net profit)

  • Need to improve capital efficiency

  • Breakthrough vs. Continuous Improvement

    • Improve 2.5% per year via best practices, but …

    • Industry declines 3% per year

 

 Source: web.aacei.org 

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