Despite Falling Oil Prices, Projects Remain Important
Large-scale capital projects have always been the lifeblood of Energy companies. From pipelines and transmission lines to offshore platforms, refineries, and power generation plants, these investments fuel growth and enable companies to take advantage of new opportunities.
Despite their importance to the business, capital projects are often a risky investment for Energy companies, in large part because of the industry’s poor track record, as highlighted in this recent Ernst & Young survey. In fact, E&Y found that nearly three-quarters of projects failed to deliver by their projected completion date, and nearly two-thirds of projects came in over-budget. Those are scary numbers, but the scale of these cost overruns makes it even worse: estimated projects costs averaged 59% above initial budgets.
Even in the best of times, this is a problem that demands attention. But in the Oil & Gas industry today, it is not the best of times. From its three-year high last June, oil prices have plunged dramatically over the last half of 2014, and the impact to this industry has been dramatic.
Today’s economic reality has put oil and gas companies in a difficult situation, as the industry has been making considerable investment over the past several years to increase production. But today, these same companies find themselves squeezed to generate free cash flow to service this debt and remain profitable.
Read More: Oil Price: The Top 25 Events That Rocked The Cost Of Crude Oil
To adapt, companies are focusing on two areas:
Improving efficiency through better operational controls within existing assets, improving the performance of their project investments, and streamlining both A&D activities and back-office processes.
Reducing risk by prioritizing safer investments, better management of their capital investments, and taking steps to ensure better project reliability.
While some companies are being forced to cancel or severely reduce their investment in new large-scale projects, the reality is that oil & gas companies are reliant upon the assets created from these projects to drive their future growth and profitability. Even in uncertain times, companies need to find a way to make smart investments in their future, and studies show that big-ticket projects continue, but at a more manageable pace.
To adapt to these challenging times, we are seeing companies adopt one or more of the following strategies to get their projects kicked off and across the line:
Prioritize Projects to Extend Asset Lifespans and Efficiencies
Many of our customers are sharing that, even while large-scale capital projects are slowing down, the number of smaller, brownfield projects is increasing dramatically. Even for the companies feeling the squeeze from low oil prices the most, these smaller, more targeted investments have significant return in a relatively short period of time.
Focus on Fixing Project Reliability
The poor record of delivering projects on time and under budget, described above, shows that with improved project management, there is plenty of room to improve the performance of large-scale capital projects. One best practice that we see companies employing project management tools is to keep your project-estimation process constantly informed of changing prices and current project status.
Identify Better IT Approaches
While Information Technology (IT) technologies and solutions are designed to provide value for customers, we know that this value can sometimes be elusive. Whether it’s because the requirements are complex, the technology isn’t an exact match for the solution, or because the capital investment required is prohibitive, many customers struggle to justify new IT investments. And the current climate makes this situation even more difficult.
And that’s the basis for EMC Documentum Capital Projects Express. It’s designed to allow mid-sized companies, individual departments, or large organizations to get started quickly and without large up-front costs. Whether your focus is optimizing efficiency with your existing facilities, focusing on brownfield projects, or striving to minimize the risk for your larger-scale projects, this cloud-based solution offers great value for projects on tight budgets and timelines.
What is your company doing to adapt? Are you leveraging these strategies, or have you found another approach that will work? Share your thoughts