Advanced Project Techniques

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Notes on Oil Industry Projects

Throughout this site there are references to oil industry projects which is where the bulk of our indsutrial experience was gained. The oil industry is one of the main generators of large, private sector projects and has played a major part in reshaping the UK economy in the last quarter of the 20th century. Those of us who worked there during this period were fortunate to have this background.

The industry has provided excellent training in project management techniques, for the reasons outlined below:

Type of Project

Oil related projects tend to be rather larger and more demanding than those encountered in other sectors, often with very high stakes, and hence provide an excellent training ground for those working on them.

Commitment to Schedule

The commitment in the oil industry to the "first oil date" is legendary. Professionals from the industry are always focused on meeting the end date rather than finding reasons why it can't be done. All of the successful contractors understand that "delivery on time" builds a strong reputation and repeat business.

Commitment to HSEQ

Statutory requirements regarding health, safety, environmental protection and quality (HSEQ) are as high, if not higher, in the oil industry as in any other. The assertion that these requirements are incompatible with fast tracking doesn't stand up - a project which is executed safely and "right first time" will also be completed quickly

Contract Innovations

The oil industry has evolved through various stages from its early beginnings with huge reimbursable contracts (justified by the size of the fields being developed at that time) to its present, highly sophisticated form. Along the way there have been some genuine innovations such as:

- CRINE (Cost Reduction in the New Era) a broadly based initiative which effected substantial cost reductions

- Alliancing: alliancing contracts saw their most effective incarnation in the oil industry, again with significant savings.

- Partnering: the use of long term relationship contracts has become the norm for maintenance, achieving high standards of safety and efficiency.

Partly through these innovations the industry has been able to complete many projects below the initial budget with sharing of the benefits by the participants. The efficiency gains since the early days of the North Sea have been staggering.

Risk Management

The oil industry was one of the first to use probabilistic financial models of projects and to formally undertake quantitative risk analysis, and it remains one of the leading practitioners to this day.

Summary

All project professionals started originally in one sector or another, and we believe that having one's roots in the oil industry is as good as any. As it has matured the industry has been able to undertake some of the largest and most successful investments in the UK in recent decades. There are valuable lessons to be learned from this wealth of experience.

 

Case Study

Semisub conversion

Inappropriate Contract

The conversion of a former drilling rig into a production platform was performed to a fixed price, lump sum contract. The project took place in the early 90s in South America. The work scope couldn't of course be verified in advance and the actual costs were much higher than estimated.

This is a mistake which has been repeated many times, usually caused by over-competition amongst the contractors and over-powerful clients (in this case it was a state owned oil company). Whilst the client may initially feel that it's getting a very good deal by imposing an onerous contract, at the end of the day (perhaps after a long court battle) they usually end up sharing the pain, which is exactly what happened in the case in point. In extreme cases the contractor may be put out of business by a disastrous contract of this type, to the benefit of no one.

It is invariably better for both parties to have a more equitable contract with performance incentives, and many progressive companies now accept that this is the case.

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Contact: phone (44) 01502 575 536• email: enq@apt-projects.co.uk

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