By Amira S. Badawey
Highlighting the importance of sound project management in the oil and gas sector, the Egypt Petroleum Show (EGYPS 2017) has dedicated a specific category on the topic, which will be discussed by experts, industry professionals and executives during the conference’s Technical Sessions.
Compromising of large ventures that span multiple years and with momentous outcomes, the oil and gas sector represents a huge challenge for project managers. Imagine the amount of manpower and effort put into the construction of an under-sea pipeline or oil refinery complex. Furthermore, adding to the complexity of oil and gas projects is the strategic significance of the outcomes of these projects to nations and economies. With billions of dollars invested in exploration and production, any delay or change in an oil and gas project can have an immense impact, in addition to heightened environmental and safety risks.
Experienced and talented project managers are a must, but they are not enough to ensure the successful delivery of projects in oil and gas. Strict and disciplined project management habits are crucial. Successful managers of large projects follow a coherent, consistent reference framework that guides their decisions and processes. Successful companies also continuously improve their general project management skills, as well as skills specific to oil and gas.
The Project Management Institute’s (PMI) framework remains the de facto methodology applied in the sector, with oil and gas project managers seeking Project Management Professional Certification (PMP). Although the PMI incorporates new project management concepts in every edition of its Project Management Body of Knowledge (PM-BOK) reference material, PMI’s framework mainly centers on the more conventional waterfall model. With other project management concepts, such as Agile, emerging over the years, the question remains whether or not the oil and gas industry can benefit from these advancements.
The Nature of Oil&Gas Projects
The success of any project is assessed by the completion of the required scope of work to the agreed upon standards of quality, within the agreed upon timeframe and budget. Accordingly, these three factors of scope, time, and cost also stand as a comprehensive measure for the magnitude of projects. Based on this, projects within the oil and gas sector are enormous. However, the notion of an oil and gas project is too ambiguous, as this can be the execution of development plans for oil fields, the construction of a gas pipeline, or building a petrochemical factory. In order to identify how oil and gas projects can benefit from advancements in project management, we must first define what a project in the sector is.
Projects under the midstream and downstream segments of the industry are more akin to construction projects. According to The Contractor Civil Engineering Home website, these projects have specific targets, with construction occurring in a routine manner that consists of a number of associated activities contributing to the project as a whole. The timeframe of such projects are limited, with a high degree of predictability in defining completion dates. As is the case with any project, the construction of a pipeline or facility does bare some risks. Yet, civilizations have been building structures since the days of the Colosseum and Pyramids, therefore the construction industry has centuries of aggregated knowhow to identify and mitigate potential setbacks.
On the other hand, the exploration of petroleum and mineral wealth has only been around for slightly longer than 150 years, with the first successful use of a drilling rig on an oil well occurring in 1859 in Pennsylvania, according to the American Oil&Gas Historical Society. Furthermore, upstream discoveries are associated with significant investments to ramp up oil and gas production. Bain & Company’s report titled ‘Large Project Management in Oil and Gas’ states that an offshore facility in the Arctic can cost more than $3 billion. Furthermore, such projects involve many stakeholders, including shareholders, local authorities and regulators, and environmental and community advocates. Schedules are also compressing. The report further explains that “for one oil company, more than 90% of its field discoveries from 2009 to 2011 were due online in less than eight years.”
Of course, oil and gas companies do not manage only one concession at a time. Firms’ portfolios include hundreds of complex explorations traversing the globe. Companies prioritize these developments not only on financial goals and risks, which include execution, commercial, health-safety-environmental (HSE), and reservoir risks, but also increasingly based on the availability of scarce resources like engineering talent. With the size and the strategic nature of exploration and production, the most benefit from advanced project management techniques can be incurred in the upstream segment of the industry.
Conventional Project Management Methodologies
Traditional project management has explicit, high visibility processes for planning and executing work, with implicit, secondary visibility processes for communicating and problem solving. A project-based methodology is a consistent approach to warrant that, all features are included, assessed and recorded. Therefore, the application of project management techniques will be proven advantageous only when organizations succeed in carrying out projects to completion and yielding the desired results, with the main benefit in the form of better risk and stakeholder management. The oil and gas industry has long been benefiting from traditional project management concepts.
In complex oil and gas endeavors, project cost, timeframes, and quality are stressed to meet the demand of various stakeholders. Furthermore, oil and gas companies utilize portfolio management to administer the projects under execution. Accordingly, a portfolio consists of projects that are clustered together in order to manage them more effectually, and ultimately accomplish corporate aims. In their report titled ‘Project Management in Oil & Gas Industry’, Sunitha Katna, Edward Rose Cooper, Emmanuel Ukpong, and Richard Tuin cited that “the primary advantage of good portfolio management include improvements in financial performance, asset engagement, and transparency.” Additionally, the report advocates that “projects in a portfolio should be categorized, so as to line up projects with the overall organizational strategy, and rank for better resource and funding allocation decisions.”
Based on a case study of a project in the Sultanate of Oman operated by Portugal’s Partex Oil and Gas Group, Zarina Kenzhetayeva pointed at that the oil and gas industry only applies selected risk management tools to projects rather than the complete framework as stated by the PMI. In her ‘Project Management Methodology and Tools for Oil Field Development: From Investor Point of View’ study, Kenzhetayeva stated that “oil firms rely more on specific risk management techniques, such as Monte Carlo simulation and economic analysis and modeling.” This comes mainly because risk in oil and gas projects are viewed as commonly associated with the application of the specific standards concerned with prevention of hazard risks such as oil spills, fatal accidents, and workforce injuries.
Furthermore, the propagation of offshore projects, specifically in the West-Mediterranean region, has encouraged firms to share lessons learnt in various discoveries. This share of knowhow spans service companies across the upstream value chain starting with the collection of seismic and geological data, leading to drilling and production. A report titled ‘Project Management of Offshore Well Completions’ by a group of oil and gas professionals in Texas, Trinidad and Tobago, Angola, and Malaysia found that “achieving a successful offshore completion required a closely integrated, multidisciplinary project-management team comprising personnel from the operating company, drilling and service companies, and equipment manufacturers.” After agreements were finalized, it took the involved teams about 24 months to analyze technical parameters and obstacles, determine the completion strategy, design and manufacture the completion equipment, perform thorough testing and finally install the completion in the well. Close integration between the service company and operator was critical to achieve success in a timely and economic manner, especially for challenging deepwater fields. Project managers have a birds eye view of progress being made by various teams, and therefore can assure better coordination and collaboration as needed, as well as exert tighter controls.
Towards a More Agile Industry
However, traditionally defined project control mechanisms require project scope to be broken down into well understood, discrete, interdependent tasks. This is ideal for activities where there is a clear picture of the final outcome and where there is low likelihood, requirement, or desire to accommodate change. Agile Project Management methods, on the other hand, offer an empirical control model that works through frequent inspection and adaptation, something that can be more suited for recent oil and gas discoveries. Agile Project Management pays equal attention to communicating and problem solving as it does to planning and execution. There is upfront acknowledgment that requirements are not knowable in advance and that building feedback loops will be necessary to uncover definite requirements.
Kate Parker of Agilis Project Intelligence believes that an Agile approach to project management can offer value to the oil and gas industry. She pointed out that specific technique such as Kanban (Japanese for signboard or billboard) will allow petroleum companies to track progress of longstanding items through a process and let status, progress, priority information, and areas requiring attention to be easily shared among project participants and stakeholders. Furthermore, Scrum or Scrumban ensures the efficient completion of work in order of its value to an organization within a fixed timescale or budget.
Mike Griffiths, an Agile consultant and trainer, stated that Agile techniques are a “natural compliment and fit” with lean processes, “especially well with the unique problem solving and collaboration needed to undertake complex projects.” However, he explained that oil and gas projects represent a unique blend of knowledge worker challenges that are a great fit for Agile, and industrial engineering that requires traditional approaches. Accordingly, he recommended combining techniques to best suit specific needs, and to provide mental models to facilitate planning and problem solving. Griffiths sees that activities like the collaborative work of geologists and geophysicists as a better area to use Agile methods to collaborate on solving complex problems and gain consensus on the direction to move towards. After determining an area to explore, the execution of a seismic survey might involve mobilizing a large workforce of several hundred people and scheduling constrained equipment. While this can be done in an iterative, prioritized manner, many of the benefits of short iterations, reviews and adaptation are diminished so a hybrid approach is preferable.
Dick Westney, Founder and CEO at Westney Consulting Group, agrees. He stated that, “today’s capital projects need to find a balance between yesterday’s best practices and complete flexibility.” Yet, the challenge remains in understanding how to combine the iterative, problem solving knowledge-work with the linear, predictive industrial-work in a way that stakeholders can understand and embrace. The oil and gas industry needs a holistic model, suitable for complex life-cycles that have consistent communications, but flexibility for specialization.
Success in petroleum projects will require a combination of evolving technologies, human resources expertise, and strong project management methodologies to provide investors with tools to manage and respond to unforeseen changes. If a project has a poor project management framework, it can cause unfavorable consequences such as loss of the project value and damage of business relationships with partners and governments. On a contrary, adequately used project management tools can increase the chance of project success and shareholders satisfaction.
Oil and gas companies should work on bringing an Agile mindset to delivering organizational and project objectives. However, getting divergent groups to adopt a consistent methodology is difficult and potentially sub-optimal. Groups need the freedom to operate using their industry’s best practices and also have a say in work scheduling. Forcing a group to adopt a new approach whether it is Agile or traditional will generate resistance and obstacles. While executives want to move quicker and more accurately, companies need to balance the mindsets and risks of “Look before you leap” and “Cross that bridge when you come to it”. Engagement models that balance both approaches, but also provide integration points can help organizations to become more Agile, while maintaining their traditional edge.