Project management is quite different from engineering. An engineer is normally responsible only for his or her own work product and generally deals with the reactions of inanimate substances that follow the laws of physics. A project manager is required to be responsible for the quantity, quality, and timeliness of work products that generally do not follow any physical laws. To succeed as a project manager, the most important thing is to ensure good communication within the project team. Communication can be accomplished in many forms (verbal, written, formal, and informal), but one size does not fit all, and the project manager is responsible for communications concerning the project and its execution.
Figure 1.1--Ability to influence project costs vs. project life cycle. Before we discuss how to do a project, we will define some of the basic terms used in that discussion. Immediately after notification of your appointment as project manager, you should quickly determine whether your company has any previous experience in this type of project. If so, you should review the project files and determine whether that effort was considered a success or failure and the reasons for that assessment. Remember, those who ignore history are bound to repeat it. The lease agreement defines your relationship with the leaseholder; the JOA defines your relationships with other working-interest owners for whom you are the operator. Both documents may have sections that are different from your company's normal operational procedures and may affect the project accounting, procurement, facility, and pipeline options. It is important that you understand these documents and any reference in them that would affect the execution or final configuration of your project.
The project team is now fully assembled, and it is time to start the physical project work with all members becoming involved in the engineering, purchasing, and contracting effort. These accomplishments must be measured and reported to determine the efficiency of the work and the true financial impact of the project. Real progress on a job is determined by a counting of such things as the number of documents delivered vs. the total number or the number of welds made vs. the total number required. Progress is not measured by comparing the money spent vs. the money allocated. The requirement for real progress monitoring increases as the job grows in size and complexity.
Obtaining an internal project financing with an authorization for expenditure (AFE) will consist of doing a project cost estimate and schedule for the total internal and external project expenditures and presenting it to management and partners for approval of these future expenditures. Depending on the data available to you from previous similar projects and your skill and confidence levels, you can do this estimate yourself or ask your chosen engineering contractor to help. You should review your company's standard forms and conditions for AFEs. You should also review the joint operating agreement (JOA) on this subject because its requirements may be different from your company's requirements. If you choose to do the AFE estimate yourself, you should consult the equipment and service vendors in your area that will eventually be supplying the project equipment and services for help in both these areas.
EBN is the Dutch state energy company that is a large non-operating partner of over 10 different operators that produce from more than 200 on- and offshore assets with more than 850 projects defined on them. Estimating budget production, medium and long-term forecasts and its associated operating and capital expenditures are of vital importance to EBN. Larger companies with many assets and even more projects, at varying degree of maturity, have great difficulty to reliably predict an aggregated forecast.
Historically, EBN would copy and risk operator data, which led to continuous overestimation of both budget production and longterm forecasts. A straightforward correction method was developed; that consists of two parts: firstly, the budget production is set for all producing assets and projects by assessing technical, subsurface, infrastructural and human factors on the operator's fields and projects performance. Secondly, the medium and longterm forecast is delayed with 1 to 4 years for respective SPE PRMS resource classes "justified for development" to "project unviable" and the associated project forecasts are risked with a chance of development according to their subclasses of the contingent resource classes.
Data analytics on almost 10 years of reserve reporting according to SPE PRMS standards led to a straightforward solution to reduce short and medium-term forecasting error. The short-term absolute average error used to be 8%. Through the implementation of the new method, 7 years ago, the absolute average short-term forecasting error dropped to 4%. The long-term aggregated forecast, obtained by simply copying the operator data, resulted in an overestimation of up to 50% 5 years ahead. The overestimation was reduced to an absolute average error of 23% by an earlier correction method, which only used risking factors on contingent projects, but no time delay. This paper presents a new method, that uses both risking factors and time delays on the realization of projects. The method reduced the error in the long-term forecast to an uncertainty band of a few percent.
Various causes for the overestimation were identified. The budget production errors were primarily attributed to wrong uptime predictions. Longterm forecast errors are impacted by the overestimation of the number of executed projects, while the timing and performance of new projects affects both the short and middle term forecasts.
The solution presented is the first methodology for EBN that is able to predict aggregated forecasts of hundreds of projects of several operators with an accuracy within a 5% margin over a lengthy period. The described risking factors described, and delay times, are dependent on the portfolio maturity and investment climate. Historic data has to be utilized to determine these factors for your portfolio.
Oil price forecasting has been shown to be challenging if not impossible for the long-term. However, the oil price has a major impact on Exploration and Production projects.
Historical Project Realized Oil Price (PROP) can be calculated for example projects by summing up the total project revenue using the actual oil prices and dividing through the total amount of oil produced. For different starting dates of example projects, the PROP changes. Determining the PROP for different starting times, a Cumulative Distribution Function (CDF) can be derived. Adjusting this CDF for expected "half cycle breakeven costs" for the low limit and demand considerations for the high case leads to a PROP range that can be used for future project evaluation.
Including PROP ranges into project evaluation allows for the selection of the most attractive development option, Value of Information analysis and project Probability of Economic Success (PES) calculation including oil price uncertainty.
Furthermore, using PROP ranges rather than oil price scenarios enables a distinction between short-term budget planning and long-term project development. For budget planning, a scenario approach is suggested while for long-term planning PROP ranges should be used. Applying long-term planning on PROP ranges leads to less fluctuation in staff planning and small annual adjustments in PROP range forecasting. Also, using PROP ranges results in increasing PES project hurdles at low oil prices and lower PES hurdles at high oil prices. Hence, at low oil prices the risk averseness of the company is increased. Another effect of using PROP ranges is that at high oil prices robustness of projects to low oil prices is included in the assessment.
To investigate the effect of PROP ranges on portfolio PES hurdles and project PES hurdles, a simplified linear-fit-model was developed. The results of the model showed that the project PES hurdles in a Value at Risk assessment can be determined applying the linear-fit-model to quantify the oil price dependency. The required individual project PES hurdles can be adjusted using the linear-fit-model to account for oil price uncertainty.
The cost cuts made during the downturn and the recent increase in oil prices have led to some global offshore projects becoming economically viable. Norway is leading the comeback. Panelists at CERAWeek discussed the numerous steps their companies are taking to achieve large-scale permanent, in addition to cyclical, capex reductions on major projects.
The oil and gas industry's performance in executing megaprojects is dismal in terms of cost overruns and schedule slippage. Improving the success rates of major projects by ensuring the technical competence of engineers was the subject of a networking event at the Offshore Technology Conference in Houston in May.