Stricter project management could control offshore field development costs …

OSLO, Norway – The Norwegian Petroleum Directorate (NPD) is investigating cost overruns at three offshore field developments.

NPD’s report, commissioned by Norway’s Ministry of Petroleum and Energy, examined five projects approved for development during 2006-2008, and with total costs of over NOK 10 billion ($1.7 billion) each. Those that incurred the largest overruns and longest delays were BP’s Valhall redevelopment and Skarv, and Talisman Energy’s Yme.

Statoil’s Tyrihans and Gjøa (the latter is now operated by GDF Suez) were both completed on time and within the estimated budget presented with their development plans.

Most projects offshore Norway come through within their estimated cost range, and NPD points out that overruns are a problem globally, not just in Norway.

Its study revealed four main factors that are critical to a project’s success:

  • Meticulous work in the (early) engineering phase, which forms the basis for decisions and ongoing components of the project
  • A clear contract strategy that takes into account elements of risk such as use of new technology or major equipment items
  • Comprehensive pre-qualification of suppliers
  • Operator follow-up, wherever the construction takes place.

All five projects reviewed by NPD came together during a period when the market for services was tight. But aside from the high level of activity, the main causes of the overruns were the planning, contract strategy, supplier follow-up, and project follow-up.

“We believe that the experience gained from these projects can be transferred to other projects. It is therefore important that the industry studies the findings in our report,” said NPD director Arne Holhjem. “Now we in the NPD have to work through these findings to see how this will impact our follow-up efforts in connection with field developments.”

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