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Significant transformation is underway in the way the world produces, transports and consumes energy. Precisely how the transformation plays out is hard to predict. What is known however is that capital projects in the form of new infrastructure, and assets, are going to be the key component of this transformation. The world is going to need significant investment in capital projects to enable this transformation. And, the capital projects pipeline we face will be complex.
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A Focused Community to Enhance Management in Petroleum Engineering: The Management Technical Section (MTS)
Capello, M. A. (Red Tree Consulting, LLC, Houston, TX, USA) | Howes, C. S. (Subsurface Consultants & Associates LLC, Houston, TX, USA) | Kirkham, P. (Twinza Oil, Perth, WA, Australia) | Aguilera, R. F. (King Abdullah Petroleum Studies and Research Center, Riyadh, Kingdom of Saudi Arabia) | Nandurdikar, N. (Environmental Resources Management, Reston, VA, USA) | Dogulu, S. (International Human Resources Development Corporation, Boston, MA, USA) | Swami, G. (National Oilwell Varco, Houston, TX, USA) | Botn, T. (ThinQ Decisions, Oslo, Norway)
Abstract Our industry will see more disruption in the next decade or two, than it has seen in the past century. Our deliverables will change from ensuring reserves additions and production growth, to ensuring we generate returns on capital greater than the cost of capital, lowering our greenhouse gas footprint, focusing on sustainability and incorporating cross-sectoral innovation. The Management Technical Section (MTS) addresses SPE member and industry needs related to the Management discipline with a taxonomy, early wins, and plans to benefit its more than 10,000 members. An SPE Management Workgroup was formed to ensure proper coverage in event programming and publications for Management topics without a designated Management Technical Director. The Workgroup produced a roadmap that was transformed into a proposal for a new technical section of SPE, the MTS. They identified opportunities for the MTS to collaborate with other SPE disciplines and standing committees where the content overlaps. The taxonomy of the MTS includes: Asset and Portfolio Management Risk Management and Decision-Making Strategic Planning and Management Energy Economics Professionalism, Training and Education With thousands of members declaring an interest in "management" as either their primary or secondary preferred discipline, the new MTS fills a gap in SPE to enable a deep dive into variety of management topics, some of which were previously addressed in several technical disciplines, but that merit dedicated attention and development. The MTS aims to advance subjects pertinent to management in oil and gas, including pivotal topics such as ethics, energy transition, and field development. Early wins accomplished in the first year of activities include the launching of the SPE MTS Connect page website with high traffic and engagement ratios. The delivery of webinars, workshops, and activities are designed to raise awareness about the MTS and its taxonomy, and to engage SPE members in dialogue. MTS plans include panels at SPE conferences, the delivery of live sessions, discussion groups for the community, and the publication of materials in the community website library. The interest in belonging to the MTS became apparent by the growth in the first months of existence, increasing by approximately 14.5% more affiliations, totaling more than 10,000 professional members (from 10,845 June 2022 to 12,419 by October 2022). As global upstream, midstream, and downstream companies face new challenges, Managers’ face new responsibilities as Agents of Shareholders in addition to new expectations from other stakeholders. The MTS will promote holistic thinking to improve performance, share effective risk management techniques, highlight new market opportunities, and leverage our global professional network to drive change.
Unsuccessful leaders are downward-focused, spending their time and energy on technical or hard-side tasks such as work processes, project controls, and technical problems. Successful leaders spend their time and energy on soft-side tasks such as stakeholder management, communication, people management, and contractor and vendor interfaces. Nandurdikar and Merrow conclude that we are choosing the leaders of megaprojects via the wrong metrics. Success in managing small projects is not sufficient; indeed, the traits that naturally lead to success in small projects management lead directly to failure in megaprojects. Choosing project leaders with the right personality and emotional intelligence is critical to project success.
Guest editorial The world of E&P asset developments is seriously challenged even with oil prices higher than USD 100/bbl. Over the past decade and a half, the average E&P asset development has delivered only 60% of the value promised at sanction. The remaining 40% of expected value is eroded during asset development and execution. In any other industry, commodity chemicals, grocery stores, you name it, the level of capital discipline demonstrated by E&P businesses could put their firms in jeopardy. And yet the rising tide that lifts all boats—high oil prices and oil company profits—hides and perpetuates poor project performance. Here is our situation: Our larger and more complex projects over the past nearly 15 years have had generally dismal outcomes. Now, due to the demographics of the industry—both ours and our supply chain providers in the engineering, procurement, and construction (EPC) industry—we find ourselves unable to make consistent and robust profits on new field developments even with prices that are by historical standards very good. We need to be realistic and face the problem that things are not going well in our major capital deployments, and history suggests that our decisions have not been good. If nothing changes, there is every reason to believe that things will get much worse before they get better. The circumstances and contributors to this asset development quagmire is a mess of our doing. There is no use pinning the blame on project management or EPC contractors or the quality of supply chain. That only carries us to despair because supply chain providers also face problems of their own when dealing with owners. We continue to make the same mistakes over and over and over. We do not rigorously follow our own work processes and always make exceptions for “strategic” projects. We have substituted short-term gain for long-term value. But most damaging of all, we chase volumes in the wrong way, and in the process, destroy the most critical drivers of value: production attainment, and reserves recovery. These are the symptoms of the problem, but they are not the source. The source lies at the disconnect between business expectations of project performance and the realities of what is possible today. Project teams can deliver great projects, and our firm has seen some exceptional teams deliver exceptional projects. The problem is the conflict between business desires and what is realistically possible. Project management and functional leads are responsible for delivering on the business objectives handed to them. The onus, therefore, is on business managers—that is right, the business side of the organizations— to change their mind-set about how to pursue the right projects the right way in today’s environment by tailoring our project development systems. Broken Promises Gone Unrecognized But first, business should understand just how much project value is eroded. So let us step back and look at our performance on projects completed over the past 15 years. Of all the developments completed, 70% of the developments eroded value. On a price-normalized basis, these projects delivered less value 2 years after startup compared with the value promised at sanction (Fig. 1).
The world of E&P asset developments is seriously challenged even with oil prices higher than USD 100/bbl. Over the past decade and a half, the average E&P asset development has delivered only 60% of the value promised at sanction. The remaining 40% of expected value is eroded during asset development and execution. In any other industry, commodity chemicals, grocery stores, you name it, the level of capital discipline demonstrated by E&P businesses could put their firms in jeopardy. And yet the rising tide that lifts all boats--high oil prices and oil company profits--hides and perpetuates poor project performance.