Pillars of Industry

Walking To Run in Megaproject Execution

Edward Merrow, Independent Project Analysis
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If you love capital projects, and especially the big, complex, and really difficult ones, the petroleum industry is the place to be. Oil and gas development projects provide the young or experienced engineer with all the excitement you could want—challenging projects in challenging places. Projects combine technology challenges with organizational and people challenges in ways that few other areas of professional life can.

            Let me tell you a brief story that has helped guide my career. About 30 years ago, soon after I had started Independent Project Analysis, I was trying to develop work with Amoco, then one of the major oil companies. I met with a vice president who started grilling me with questions about my new company:

“Do you have years of industry experience?”

Answer: “No, sir.”

“Well, do you at least hire people who have years of industry experience?”

Answer: “No, sir” (while I thought to myself how poorly this interview was going)

Then came a shock with his response:

“Good, you’re hired. I am looking for countercultural. I don’t want to hear the same ole stuff.”

The lesson I carried away is just be yourself and let people like you or not; your mission in life is not to meet other people’s expectations.

            One of my goals in the latter part of my career has been to try to help the industry improve its performance on megaprojects. We really have not done well. Our success rate on multibillion-dollar projects is less than one success in every four projects. A success is merely defined as a project that was even close to meeting it cost, schedule, and functionality/operational performance goals. But there is good news and the good news is that we can only blame ourselves for the failures. Why is that good news? Because what we do, we can fix. We are not victims.

            What do we need to do over the next couple of decades that we have not done thus far in the 21st century to make these big projects successful? After evaluating hundreds of oil and gas megaprojects, I have come to believe that three simple changes would reverse our history of failure:

Demand Coherent Project Objectives

As project professionals we often adopt a “can do” attitude toward our work. This is fine but it only goes so far. As the great baseball philosopher Yogi Berra used to say, “If you don’t know where you’re going, you’ll probably end up somewhere else.”

            We often start our large projects without a clear understanding of what is wanted, or with complete confusion about how it can be achieved. Let me paraphrase a real example that will have to go unnamed. A team planning a steam-assisted gravity drainage development in Alberta was given the following charter: “You need to develop the lowest capital-cost per barrel in situ project ever accomplished, being about 25% better than the next-best development.” Now that is really hard, but it is clear. But then came the next sentence: “This development must have the smallest carbon footprint of any development heretofore, also by about 25%.” Now, I understand the first objective and I understand the second objective, but I have no idea in the world how you can do both.

            This sort of problem occurs over and over again. If we do not force a change in the coherence of business objectives for projects, we will find it impossible to improve. As a young professional, try not to be intimidated into taking on objectives that do not make sense to you. Push back politely asking for clarification. Just pushing forward does not work.

Cooperate Across Functions

Oil and gas developments involve a large number of groups and functions within the owner organizations: reservoir, commercial, operations, facilities engineering, and wells planning and construction. Every function has a role to play that is critical to success. But success requires that all functions are willing to talk to each other, cooperate, and give and take. But part of the problem is that most of those involved only speak their own functional language and too often take the view that their function is the only one that is really “important.” As a young professional, make an effort to learn everybody’s dialect. If you are a facilities engineer, learn the language of the reservoir engineer, learn to speak net-present-value to commercial.

            Those that can communicate effectively across all of the functions will quickly find that they are sought after as team members and soon thereafter as team leaders. The current environment of low prices and cost-cutting will work to the disadvantage of those who are narrowly specialized. The times are much more likely to reward generalists who are willing to work in a number of different roles and can help unify the asset development process.

Walk To Run

 The single most important driver of exploration and production megaproject failures is the goal of developing a field very rapidly rather than very well. Oil and gas projects need to be understood as a process of acquiring, developing, and interpreting information. The information development process has its own logic and its own feasible speed. The process is often not linear but requires circling back as new information undermines our confidence in what we thought we knew. If all the functions are cooperating fully, the process is speedier, but that does not necessarily mean it can be fast. If the calendar drives the pace of the project rather than the development of the project’s information set, the project will almost always fail.

            When we try to accelerate projects, most of that acceleration takes place on the front end, not in execution. This is simply because it is much easier to cut corners in information development than it is to cut corners when we are cutting steel. You cannot get the drill bit to turn faster, or the floating production, storage, and offloading vessel contractor to cut 6 months, or get the subsea kit fabricated sooner. But you can skimp on the reservoir appraisal. You can skip the facilities/wells optimization process, you can carry options out of scope development into front-end engineering design (FEED), and you can authorize with the FEED half done.

            The failure to complete the owner’s front-end work is what kills megaprojects. It destroys cost performance, operability of the asset after first oil, and ironically, it destroys speed as well. The oil and gas megaprojects with poor front-end work actually ended up taking 15% longer to execute than those that completed their front-end work (Merrow 2011).

            The intent is not to be slow. Projects should be pushed forward as quickly as best practice allows—but not one second faster. Fig. 1 makes the point: Megaprojects that achieved best practical front-end definition were successful more than 60% of the time, while the average oil and gas megaproject succeeded 22% of the time. Front-end loading as we call it does not guarantee success, but it does enable it (Merrow 2011).

            In my view and the view of many others, we have entered a period of lower prices that may well last for a number of years. If we are going to survive this period, we must change the way we approach our largest, most difficult, and most important capital projects. We simply cannot afford to do what we have been doing for the past decade. It is going to be up to the young professionals in our industry to make the needed changes.

Reference

Merrow, E. 2011. Industrial Megaprojects: Concepts, Strategies and Practices for Success. John Wiley & Sons, Hoboken, NJ, p.221.


Ed Merrow is the founder and president of Independent Project Analysis, a company focused on helping its customers improve their capital projects and project systems. He has spent more than 35 years studying megaprojects at IPA and Rand Corporation, analyzing the drivers of success and failure in capital projects. Merrow is an SPE Distinguished Lecturer and regularly gives speeches at SPE events.