Project Governance and 2017 Challenges

We are delighted to announce that Bob Laidler, our Project Governance Course Director, has joined the Board of WBC Training. Bob’s expertise lies in helping individuals and businesses in the oversight of complex projects, with a particular emphasis on effective decision making and stakeholder buy-in.  In his first blog for us, Bob explains the importance of effective project governance in today’s market:

Poor E&P project management has long been a recurring theme. Some claim that in the past ten years, the majority of oil and gas megaprojects have landed over two years late and more than 60% over budget.  A lack of effective corporate oversight is often cited as a key failing, leading to (amongst other things) an erosion of confidence in the project team and its decisions, and the company itself, and impacting on the timely buy-in from key stakeholders.

In today’s challenging market this is becoming an ever more critical issue, as poor performance can no longer be hidden by a high oil price.  Although the oil price is recovering, the industry still faces huge challenges, which can be summarised in three broad groups:

Lack of Skills & Resources

  • The skills gap has been a growing concern over the last 15 years. Effective project governance requires key players to have experience in field development planning, project management, decision making and corporate oversight.  In the past two years, hundreds of thousands of experienced staff have been laid off, and many will never return. Training budgets have been slashed. And it is not just in the oil co’s but also the design, construction and operational support services – where facilities as well as people have been lost.  This lack of skills and resources will inevitably impact costs and timings when projects start to pick up.

Technical and technological challenges

  • Cost cutting has led to significant rationalisation and standardisation of processes and products – and there is room for more. But change does not always come easy to an industry used to doing things a certain way.
  • The technological and environmental challenges are getting harder as companies explore and develop in the more extreme environments (deeper waters, arctic conditions, transporting waxy crudes further, etc.), and standardisation doesn’t always sit easily with project complexity.

Stakeholder Expectations

  • Governments are increasingly keen to see that the socio-economic benefits are maximised within their country. Environmental groups are also stepping up their activities. This can cause significant project delays.
  • Investors have become more cautious; they now seek to ensure value is not only correctly identified but duly delivered. They are taking a more critical look at the ability of the Operator/development consortia to manage the development – and many companies do not have an enviable record in this respect!
  • Stakeholders want to understand the trade-offs between short-term revenues and long-term value. There is a natural tendency to develop a discovery quickly and effectively with minimal risk…..but in this case asset value is not always optimised, particularly when there is a range of possible upside options within the whole license block and potentially within a cluster of neighbouring blocks.

Addressing these challenges and managing the risks they present is an essential part of project governance. Many E&P firms have comprehensive project governance systems in place, but some do not.  Several companies have been updating their systems and processes: they recognise the need for improvement, but for others, there’s still much to be done.

As we (let’s be optimistic) move into a period of growth in the industry, with new projects coming in, the industry faces a skills gap, continued structural and technological change and more demanding stakeholders. Risk management and project governance skills will be at a premium.

Really effective project governance has never been more critical to the industry, and becoming an increasing focus of external stakeholders, investors and potential partners.  Successful project governance is a major competitive advantage for those who get it right: it has never been more important.

Find out more about our Risk Management and Project Governance courses by clicking on the links below:

  • Risk Management
  • Project Governance

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