Joint ventures (JVs) are a major tool for the oil and gas sector’s environment, which is mired with complexity and continuous risk. JVs are entities between two or more companies to establish a project. Each partner included in the JV has to realize that trust and establish proper communication. This is the core that will determine a JV’s success.
Embarking on a JV enables the partners to have access to new markets, new technologies, deal with different situations and share the project’s benefits and risks. On the other hand, partners may have unclear or different objectives for the project, and companies from different cultures may find effective collaboration harder to achieve.
When it comes to using the JV for establishing a mega project, these advantages and disadvantages may be amplified by the fact that a higher number of partners are involved. Hence, mega projects require establishing a special structure to deal with the higher complexity. Partners must take many factors into consideration including the political, economic, norms and rules of the host country.
Nowadays, establishing JVs for oil and gas mega projects is hindered by the many challenges that need to be clearly addressed from the very beginning of the project to identify the required methodologies needed to overcome them.
Barriers to Consider
Mega projects are a necessity to maintain progress in the oil and gas sector. Day after day, these massive projects have proven their importance by the economic transformations they have achieved. However, these projects are faced with many barriers that may be gauged from the beginning of the exploratory phase until the production phase. That is why, while establishing these projects, there is a question that must be raised: how can mega projects succeed and be built on time and on budget? To answer this question, the challenges associated with these projects must be considered.
The first challenge that faces any mega project is its feasibility. Before initiating the project, the partners have to check whether it will be feasible to do the project or not, taking into consideration all political, economic and social factors that will affect its outcome.
The unclear role of the partners participating in the mega project may also be a main challenge. From the beginning of the project, each partner must clearly understand the project’s vision and objective. This will enable the partners to recognize their rights, duties and the ideal way to perform their roles in a way that will contribute to achieving the project’s goal. That is why misunderstanding the partnership concept is problematic when failing to understand how they need to implement their roles. Besides, the size of the role has to be considered also, meaning that if one partner holds a greater stake in the project, the others must understand it will have a larger role in managing the project. On the other hand, if the project’s roles are divided evenly among the partners, they are all expected to exert the same effort.
The planning phase is in many ways the most important stage of developing a mega project. If the project’s plan is not clear, depends on misleading information or does not take into consideration the project’s circumstances, this could result in budget shortfalls and missed deadlines.
Moreover, mega projects are inherently risky because of their high complexity. That is why, the unequal sharing of risks and benefits among the partners could be a major challenge – especially if an unexpected problem arises. The funding may be a challenge too if financial responsibilities are not clearly agreed.
When it comes to the execution phase, there will be different challenges that may appear including sourcing the needed resources for establishing the project. Some countries suffer from lack of resources and importing materials will add to the cost of the project. Furthermore, companies will need to ensure that the necessary technology is accessible.
Employing workers with inadequate training throughout the execution phase can also be fraught with risk. The workers will not understand completely their missions while handling the project and how they must perform to link it to production which may waste time and resources.
If all of these challenges and others are not taken into consideration from the beginning, the situation may deteriorate. The partners may either be over-optimistic for the project’s results or become overwhelmed by problems posed by poor execution and weak organizational design.
Crossing the Barriers
Partners need to figure out how to cope with the challenges surrounding JV mega projects. To do so, the owners have to establish a framework to organize and manage the project’s life cycle from exploration and planning to production through to decommissioning.
The first step to overcome these challenges is carrying out a well-researched feasibility study. This will help the company determine the likelihood of success and to provide an advanced projection of the potential costs and returns.
Besides, the partners must also agree on a management system and a means of allocating tasks and responsibilities between them. Each company will fulfill specific responsibilities in the project and provide finance for it. How these obligations are distributed will be confirmed during planning, and a management system should be in place for when the exploration phase of the project begins. Putting these structures in place will help to avoid any problems or conflicts when the project is underway.
After this step, the owners have to specify formal phases as check points, meaning that, before moving from one phase to another, there must be specific measures to be reviewed. In this way, there will be transparency in the decision-making process throughout the stages.
Furthermore, one of the main cores to guarantee the mega project’s success is to build a team with the most suitable mix of abilities for the project. That is why, the owners have to ensure that their workers are fully trained, understand completely their roles and perform them correctly. Having a team with clear roles and shared goals will help to minimize bottleneck situations.
Engineering is one of the most important skills needed in any successful mega project. That is why all successful international oil companies have highly-skilled engineers who are trained in all the latest technological innovations and techniques.
National governments almost always play a major role in the development and direction of mega projects. Due to their size and scope, large energy projects are often seen as critical infrastructural projects that necessitate government involvement. The state can help by removing regulatory barriers, simplifying legal procedures, and providing access to resources, infrastructure and technology needed for the project’s development.
All mega projects must engage in risk management, which requires that the companies not only consider predictable risks but also plan for unexpected ones. Conducting a proper risk assessment requires careful planning, technical knowledge, and the study of other companies’ past experiences.
A Light at the End of the Tunnel
Amid the challenges that hinder the progress of oil and gas mega projects, the owners of these projects need to think about the future and how fruitful the results will be when they exert their efforts to figure out how to stand against this dilemma. During the life cycle of the mega project, the owners have to set specific standards and techniques to define the project’s boundaries.
In order to guide mega projects in the future, we must encourage research that analyses the previous technical and operational experiences of other companies. In these studies, they need to discuss the problems faced by other mega projects and how the owners managed to overcome them.
Most importantly, this research should study the projects with the greatest foot prints around the world to benefit from their success stories, from their methodologies, and to have a wider view of the necessary steps to developing a successful JV mega project over the long term. Case studies of failed mega projects can be prepared in a bid to help prevent future ventures from suffering the same consequences. This should be done in the knowledge that individual projects operate within different environments, and that the challenges faced by one may not necessarily be transferable to another.
Deepening research into the subject will make great strides in measuring the performance of mega projects, determine the problems they face and demonstrate how they are solved. This will help develop effective methodologies to be taken into consideration by future efforts to establish JV mega projects.