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The Megaprojects Paradox

Megaprojects, characteristically, are major infrastructure projects that cost more than US $1 billion and include technological complexity that is innovative and often experimental. They are implemented in a complex social and political environment, with a range of relationships between public and private investors.

The Megaproject’s Paradox refers to the following: There is a continued focus on large, infrastructure projects to deal with increasingly complex human needs, even when these very projects underperform.

In a recent major study of industrial megaprojects by Independent Project Analysis, non-oil and gas development projects maintained a success rate of approximately 50%, but only 22% of oil and gas megaprojects were considered successful. Of the remaining projects, 33% experienced real cost overruns, 30% had execution schedule slippage, and most significantly 64% of these projects experienced production attainment delays.

So why are megaprojects producing such an unsatisfactory rate of success? Here’s a closer look at the three major factors that affect the outcome of an upstream megaproject.

Front-End Loading (FEL)

FEL, (also referred to as front-end engineering design (FEED)), includes planning and design early in a project’s lifecycle, when the costs to make those changes is relatively low. FEL is often used in capital intensive industries with long project lifecycles (i.e., hundreds of millions or billions of dollars over several years before any revenue is produced). Typically, FEL uses a stage-gate process, whereby a project must pass through formal gates at well-defined milestones within the project’s lifecycle before receiving funding to proceed to the next stage of work.

For field development projects, FEL includes the appraisal and definition of the reservoir, definition of the facilities, and definition of the well construction program. This makes the outcome of megaprojects particularly sensitive to the completeness of the front-end work. If FEL is incomplete, cost overruns will occur.

Continuity of Project Leadership

The project director’s role as a functional integrator between separate reservoir, facilities and wells teams is a critical success factor throughout the duration of a megaproject, and makes this position uniquely important in upstream vs. non-upstream megaprojects. Turnover of the project director for an average upstream project is associated with a 30% decrease in the probability for achieving a successful project even after controlling for the effects of FEL. In comparison to other industries, if the project director was replaced on a non-upstream project that was equally well front-end loaded, there is only a 5% decrease in the success rate.

Schedule Strategy

The schedule strategy is the most significant difference between upstream and other industrial megaprojects.  For non-upstream industries, the strategy is usually based on setting the project duration on a similar time schedule as equivalent projects.  However in the upstream industry, more than 50% of projects are explicitly ‘schedule driven’, where project teams must adopt a schedule that is significantly faster (15% or more) than equivalent projects. This also includes an increase in capital expenditure to meet the desired schedule.

When a project attempts to achieve ‘unobtainable’ speed, the quality of all effort is affected. From completeness of the reservoir appraisal which influences production attainment, to FEL for facilities being rushed – resulting in costly changes during execution, to an increased likelihood of turnover of the project director’s position. In fact, 77% of schedule driven upstream megaprojects suffered a turnover vs. 50% of non-schedule driven projects.

The Clear Importance of Project Planning

Project planning, including scheduling and FEL, is a clear indicator of success in megaprojects.  Pre-planning and a realistic project schedule are especially important, as is a project director who stays on the project until completion. At the same time, the energy industry must continue to focus on evolving capabilities for large-scale global projects that include developing next generation project managers and technologies that enable increasing functional integration.

Clover specializes in placing professionals in the oil and gas industry. If you are an Operator seeking to augment Project Teams, contact Jeff.W@clovergs.com

If you are an experienced professional looking for opportunities in the Upstream Industry (Alaska, Eagle Ford Shale Play, Bakken Formation, Deepwater Gulf of Mexico), send your resume in complete confidence to Chris.S@clovergs.com 

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