Large capital projects in the oil and gas sector: Keys to successful project delivery

Executive summary

Oil and gas exploration and production (E&P) companies around the globe have experienced declining capital efficiency since 2005, as production has not kept up with development costs. Culprits include the need to look for oil and gas in challenging “frontier areas,” increased difficulty in acquiring acreage, soaring input costs, and difficulty delivering large capital projects (LCPs) on time and within budget. Since companies have the most control over the last item in this list, they can benefit significantly by rethinking their LCP planning and delivery strategy and practice.

An LCP diagnostic framework can help E&P firms improve their project delivery performance. The diagnostic poses questions regarding a company’s practices in three “activity segments”: resourcing and capabilities, planning and organizing, and managing for success and risks. These activity segments are relevant across a project’s life span and cover specific capability areas, such as training, procurement, front-end loading, field development design, governance, partners, and risk management. Generating candid answers to the questions in the diagnostic can help executives identify and thus address the main LCP delivery issues they face in a timely fashion.

Our application of the framework at numerous E&P companies suggests that companies need to alter the way they design, plan, and execute LCPs. The key is to strengthen weak capability areas in each activity segment.

Conclusion

In the oil and gas industry, executing large capital projects in E&P will continue to pose daunting challenges. Companies that are ready to take an honest look at their performance and practices in this area have a better chance of surmounting those challenges and can expect fewer delays and cost overruns with their LCPs. As a result, their capital efficiency should start to improve.

By grappling with tough questions about their LCP capabilities, E&P executives can begin gaining insights into what capabilities they need to strengthen in order to improve their LCP delivery approach. The strengthening of those capabilities requires an up-front investment of time, effort, and financial and human resources. But such an investment can pay big dividends — in the form of LCPs that come in on time and within budget.