In a typical year, Petrofac designs, builds, operates and maintains about 100 oil and gas projects, usually with six projects going at the same time. So its top managers, like Ayman Asfari, the company’s chief executive, know the industry very well. During this oil bust, operators and contractors have to collaborate better, he said during a panel discussion at the recently held IHS CERAWeek conference.
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Mega projects panel. Image from CERAWeek Twitter. |
“In the mega project EPC industry, historically, about 56% of all projects are behind schedule,” Asfari said. “More than 80% are typically over budget. I believe this is a time in the cycle when we can go back to the drawing board and improve our execution.”
The way to improve and optimize projects is create better collaboration communications between owners and contract companies, he said. First, owners and contractors should do a better job of defining the project up front. Second, companies should identify and remove bad habits such as applying projects specification from one project to another when that is inappropriate. Third, companies should help engineers understand total project economics. For example, not all projects require multiple built-in redundancies. Fourth, companies should ensure they have designed correct and achievable timelines for the project. Fifth, companies should develop collaborative attitudes with client to share ideas.
Today, saying that a mega project could be completed on time and risk-free “sounds like a punchline,” said panelist Vimal Kapur, president of Honeywell Process Solutions. To move closer to those goals, owners and operators should work in parallel, rather than scheduling for one part of a project at a time, then contacting the contractor, he said. Also, he suggested that companies test engineering specification in a cloud environment, as his company does.
“When we use the cloud to test engineering and all parties have access, some parts of these engineering projects can be completed in a matter of days,” said Kapur. “We didn’t have this tool a few years ago, and if we don’t take advantage of it today, we have no one to blame but ourselves.” Also, standardizations can help reduce some risks that are due to peoples’ variable skill sets, he said.
Kaam Sahely, a partner at Vinson & Elkins, told the audience that his company makes an effort to work with owners early in the project to find best practices for contracts over the life of a project. “Cycles do matter,” he said. Cycles drive the behavior of owners, which drives the behavior of contractors, which changes the risk appetite all along the chain of stakeholders. “But these projects need not be combative,” he said. “Owners and contractors have to really understand the project and share the allocation of pain.” Also, trying to “win” at the front end of a contract negotiation is not a “win” for anybody, said Sahely, and advised companies to strive to address all the issues in a collaborative manner to avoid significant costs down the road.
Andrei Gaidamaka, vice president of investor relations for OAO Lukoil, agrees that collaboration is key, and without collaboration, unforeseen issues can become very costly. “Cost overruns usually find the pockets of the shareholders,” he warned. Companies should strive to conduct meticulous, long-term planning from the very start of the project. He also suggested that companies should hire third-party auditors to check project management and engineering work, because engineers tend to want to; first, defend their project to corporate heads; and second, to “add in slack” in project costs to allow for cost overruns, said Gaidamaka. He called the two tendencies a “double whammy” that companies can avoid by employing third-party auditors.
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