Five key lessons for North Sea project delivery
2 minute read
With domestic energy security high on the agenda in the wake of the Russia-Ukraine conflict, 2022 is set to be a record year for North Sea upstream project approvals. But as capacity constraints and cost inflation intensify, effective delivery will be more important than ever.
We recently analysed the performance of the top 50 Norwegian and UK projects approved since 2014 to understand the implications for future developments.
Overall, project delivery has improved since the early 2010s. On average, projects were delivered close to budget and only slightly behind schedule. However, performance varied considerably, with some projects suffering delays as long as almost three years and cost blowouts of up to 100%.
You can read the detailed results in our insight What can we learn from recent North Sea project delivery? Fill in the form to download a copy, or read on for a brief overview.
Several factors linked the ‘good’ and ‘bad’ projects, from the impact of the Covid pandemic to the level of dependence on third parties. From our analysis, there are five key learnings:
1. Secure the right team at the right time
While it is important to lock in lower costs at the outset, this is only half the battle. Securing the right team, at the right time, is arguably even more vital. As capacity starts to stretch, supply chain alliances will help get you to the front of the queue when it comes delivery.
2. Build in contingencies for unforeseen issues
Cost blowouts and delays can often be out of an operator’s control. The pandemic, which caused a number of issues, including delays to build and fabrication, is a prime example. Fixed price contracts and localised content can safeguard against the worst impacts and mitigate some of the risk.
3. Align commercial interests
The Majors have benefited by having the same operatorship across tiebacks and host facilities, giving greater control over schedules, budgets and commercial agreements. It meant their projects were the least susceptible to delays and cost overruns.
In contrast, private equity-backed exploration and production (E&P) companies – who operate fewer of the large hub facilities – typically delivered projects via third party facilities, hampering schedules and pushing up costs.
4. Assess risks carefully
Never rush a project to meet overarching corporate goals. Fields where limited appraisal took place experienced the biggest reserve downgrades. On average, reserves have come down 10% from estimates at the point of final investment decision. ‘Small’ fields got smaller, while ‘big’ fields got bigger.
5. Focus on resilience and diversity
Ultimately, successful project delivery does not guarantee positive returns. Being on the right – or wrong – side of a commodity price swing often has a bigger impact on overall value. In the absence of a crystal ball, ensure projects work at low prices and spread portfolio risk accordingly.
Don’t forget to fill in the form to get the full report. This contains more detailed analysis, including a comprehensive range of charts and supporting data, plus case studies illustrating the impact of commodity pricing versus execution on project value.