Oil and Gas News

Why project controls are critical during times of economic uncertainty

Clean Energy Future Fund

By Brad Barth
InEight chief product officer

Oil and gas companies have been racing to respond to the worldwide spread of COVID-19. In an industry that is all too familiar with cyclical ups and downs and occasional geopolitical anomalies, COVID-19 hit like a global wrecking ball. The pandemic has shattered nearly every economic assumption in almost every part of the world, and it happened practically overnight.

Successful oil and gas companies meticulously develop their capital investment and asset maintenance plans to improve efficiency and ensure regulatory compliance, all while maximising return on their invested capital. But the spread of COVID-19 hit the sector particularly hard. Three of the four biggest U.S. oil and gas producers posted multimillion- to multibillion-dollar losses in their first earnings report since the start of COVID-19.

While the industry deals with a colossal disruption from oil price volatility coupled with refinery, oil rig and pipeline workers having to adjust to jobsite distancing rules, it’s a good time for oil and gas companies to evaluate the current state of capital planning and project management processes relative to the construction of new assets, as well as maintenance of existing facilities. The current reduction in demand may open near-term opportunities to address upgrades to existing assets with less impact on supply. In this context, there are three key areas to explore.

Fund the right projects

First, revisit the capital planning process itself. It’s more important than ever to make sure you’re choosing the right projects to move forward through the pipeline. With economic assumptions changing rapidly, it’s critical to continually review and monitor your organisation’s strategic initiatives to ensure they still make sense, and that they’re well aligned with the capital and maintenance projects that support them. That includes reassessing previously approved projects, even if they are already underway. As strategic goals change, the ability to rapidly identify the right mix of projects to fund can make a significant difference in ROI. In the current environment, agility matters more than ever.

Focus on overall project risk

Second, increase the focus on project-level risk assessment, which starts with scope. Getting the scope right is the most critical factor within the owner’s control to ensure predictable costs and schedules for capital and maintenance projects. It’s true that hiring the right engineers and contractors can make or break a project, but those firms will (rightfully) manage their own risk. While contract mechanisms can be used to spread cost and schedule risk across the various project stakeholders, it’s the owner party who feels the strategic impact of an unsuccessful project the most. For that reason, identifying and managing overall project risk is fully within the owner’s domain.

It’s a good time to look at commercially available software tools that help identify and quantify project risk. Software vendors have started to make highly sophisticated risk assessment technology available in the cloud as part of end-to-end project management solutions. These solutions combine artificial intelligence, actual experience from prior projects and human input to help evaluate risks on current and future projects. With a proper risk assessment in place for each project before – and during – construction, energy owner/operators can properly align funding sources and maximise return.

Keep all parties in sync

Third, for both new construction and large maintenance projects, including shut-downs and turn-arounds, look for ways to be an active member of the construction team. Again, good contractors will manage the risks associated with their contract, which can minimise your cost exposure as the owner. But even so, the impacts felt by the owner from a project gone awry extend far beyond the cost of the project itself. There is an opportunity loss relative to the resources (financial and otherwise) that were dedicated to the project, and a loss of the expected benefits from that project, such as new revenue, increased profit or other strategic goals. Staying involved at a detail level during the construction stage is the owner’s responsibility in order to mitigate this risk.

Implementing a systematic and proven work planning process can pay huge dividends in this area. Advanced Work Packaging (AWP) is one such approach that has already become quite common in the oil and gas sector. The AWP process ensures owner, engineer and contractor are all in sync, and that engineering, procurement and construction work are well orchestrated to drive better field productivity and project certainty. This is another area of functionality we’re starting to see included in construction project management solutions.

Plan, measure and adjust in real time

Fortunately, if your goal is to be an active member of the construction team, today’s cloud-based project management systems make it easier than ever. With minimal (or no) IT involvement required for setup, all the major stakeholders in a project can collaborate in real time and actively participate in time-critical workflows. Such systems provide everyone with a common repository of project scope and design documents, which minimises mistakes and re-work. They also provide current work progress status and visibility into issues as they surface to minimise delays, inefficiencies and miscommunications.

With the uncertainty ahead as the world deals with the unknown pace of recovery from the pandemic, owner/operators in the oil and gas sector face new complexities when it comes to selecting, planning and executing construction projects. The good news is that the profession of project controls is already trained to deal with these complexities, with its inherent mantra of plan, measure and adjust. Combined with today’s powerful construction project management systems, which are easier than ever to implement and access thanks to the cloud, oil and gas owners can successfully navigate through the most challenging economic climate.