Article by Adam Becis, Principal Reservoir Engineer
Megaprojects are defined by their size and scale, often classified as such if project development cost is over US$1 billion. The immense complexity of large-scale petroleum projects results in hundreds of staff being involved in the planning, designing and financing stages, whilst construction can require a workforce into the thousands. Historically, they have also often been characterized by their propensity to overrun budgets and suffer schedule delays.
Over the last decade such projects have been big news. The low oil price environment since the 2014 price crash appeared to have tempered the industry’s enthusiasm for these high cost developments. However, with prices now becoming stable, it’s likely we’ll see more of these types of projects in the coming years. In 2014 Ernst and Young estimated that 64% of oil and gas megaprojects were facing cost overruns. A prime example is the 46% increase in capital expenditure for Chevron’s Gorgon LNG project since commencement, equivalent to US$17 billion. It is rare to hear of a megaproject being lauded as on schedule and under-budget.
In this article we will discuss the causes of budget and schedule overruns, try to understand the subsequent consequences and then assess methods and strategies to combat the issues.