The future of oil and gas amidst persistent cost overrun-presented at ICCE Ottawa, Canada
“The future of oil and gas supply amidst
persistent cost overrun: A review”
Evans Akwasi Gyasi
(Warwick University, UK)
Findings and Results
About 81% of world energy demand is on
fossil fuel (IEA 2012, WEO 2012)
Current Oil demand is 92m/pbl (IEA 2013).
Average daily global oil production is
approximately 88m/pbl (OGJ 2013, and EIA
The need for different methods of oil and
Need for more innovation and technology
Efficiency in production to maximise supply
Manage and control Cost Overrun-(focus)
Definition: The amount by which the
actual cost of a project exceeds its budget
(Sheldom and Peng 1972).
Types include OPEX, CAPEX etc.
CAPEX overrun (Research Focus)
2003 10b 2007 22b 120%
2005 7b 2009 14.9b 112%
Shell Bonga 2001 2.7b 2005 4b 48%
2010 125.8b 2012 141.8b 12%
2011 36.7b 2011 39.6b 7.9%
8 out of every 10 upstream oil and gas project
overrun its cost (CAPEX)
Global Cost overrun(CAPEX) is 40%.
Oil producing regions, recorded overruns are as
high as 50-100% (Canada, Brazil, Nigeria etc.)
Threat to Future projects and profit
Impact on oil production
Impact on oil prices and demand
Impact on global economic growth
Impact on shareholders and operators profit
Impact on host country royalties tax
A call to manage energy projects efficiently
There is the need for pragmatic approach to
control CAPEX overrun.
Current level of overrun (40%) requires a quick
Qualitative Systematic Review method-
Survey Analysis was used for the work
Survey focus (5 oil regions)
Respondents(Project Managers, Cost Engineers,
Contractors and Service providers.
Findings and Results
Cost Overrun Causes Impact/severity (%)
Frequent design and scope changes 23.9%
Incorrect planning and scheduling by contractors 17.8%
Delay in material procurement 11.8%
Fluctuation in prices of materials 9%
Underestimation of project duration 7.5%
Contract mismanagement 7.5%
Unforeseen conditions (risk) 7.5%
Practice of assigning contract to lowest bidder 6%
Shortage of site workers 4.5%
Lack of communication 4.5%
1. Frequent design and scope changes and
Incorrect planning and scheduling by
contractors representing 23.9 and 17.8%.
Incomplete requirement capture
Environmental changes (bad weather)
2. Delays in materials procurement (11.8%) and price
fluctuations (9%) are dominant factors in especially
Africa and other parts of the world eg. Nigeria,
Angola, Canada (Suncor Calgary oil sand overrun)
Lack of clarity with respect to supplier offer
& materials specifications
Level of Approving authority
Global economic instability
Underestimation of project duration
Unforeseen conditions (risk)
Practice of assigning contract to lowest bidder
Shortage of site workers
Lack of communication
There is a link between oil and gas project
performance and cost overrun factors
Finding efficient ways to control cost overrun
would increase profit margins and increase
investment for alternative energy source by
operators in the industry.
Current energy environment demands
efficiency cost management for business
survival, therefore cost control is a necessity.
Is starting point towards developing a validated model
that would help predict project cost accurately
Findings can be helpful in other industries such as
military, construction, ship building, highways, and
multi-complex project companies.
Lessons will be learnt from other industries to help in
the modelling process.