As the oil and gas industry begins to emerge from a recent downturn, exploration and production companies will no doubt be tempted to chase the rewards of higher oil prices by accelerating the sanctioning of new projects. However, hasty sanctioning could lead to a lesser certainty on the ultimate cost of any given project, with those possessing high levels of so-called engineering definition generally expected to remain within about 20% of the initial cost estimates.
This is according to Rystad Energy, an independent energy research and business intelligence company, of which provides data, tools, analytics and consultancy services to the global energy industry.
“For offshore operators, this means that the expected variation for projects to be sanctioned during the period from 2019 to 2023 could be as high as $220 billion,” says Matthew Fitzsimmons, Vice President of Rystad Energy’s Oilfield Service Research division. “Historically, the ability of operators to perform to their estimates has significantly impacted their subsequent sanctioning."
Further analysis by Rystad Energy on the wider industry’s project pipeline indicated that sanctioning activity has been increasing lately for both onshore and offshore projects and is expected to cause a 10-15% rise in offshore unit prices by 2022.
For those projects due to be sanctioned over the next four years, project success is expected to range across a relatively wide scale – and even when calculating funding based on thorough engineering definition, operators could still see overrun costs come in at a cumulative $111bn.
However, this does mean that collectively, project teams have the opportunity save $111bn compared to their expected funding estimates – but only when the final decision on investment is made through well-founded costs estimates and proven concepts and execution plans. Conversely, accelerating a sanctioning decision without proper engineering definition will be far more likely to result in actual costs rocketing up by about 50%.
And even if oil prices stay above $60 per barrel over the next five years, project performance could impact the rate of offshore sanctioning.
“We’ve observed that operators are delaying their final investment decisions in order to mature the engineering definition. This will lower the uncertainty that their funding estimates will carry,” Fitzsimmons remarked. “Failure to do so will not only have an adverse impact on the operator’s ability to control cost overruns, but also the minority share owners of the field.”
Establishing a strong supply chain will be crucial to taking advantage of these emerging projects. Following a realistic and robust cost model this will help mitigate risk and drive the long-term sustainability for owners, operators and managers, as well as the wider supply chain. Accurate cost estimation and competence of execution will also play a pivotal role, as both under estimates and over estimates will impact the bottom line. Diligence will be key – and digitalisation can help ensure greater collaboration, transparency and visibility of projects from tender to implementation.
Ultimately, it will be the willingness to embrace not just local content requirement but also emerging trends and advancements in technology that will be critical when improving cost savings, efficiency and productivity.
Naturally, those open to technologies driven by data collection and data analysis have seen operations enjoy greater productivity, efficiency and cost saving. From project management to vessel performance; real-time feedback, analysis and action on performance markers can streamline efficiencies and growth.
Hybrid propulsion systems can offer fuel savings of up to 20%. Advances in satellite communications can now facilitate remote monitoring and diagnosis of faults. Optimised propellers; nozzles; azimuth thrusters are all great examples of innovation and technological advance that highlight the potential to not just survive as an industry, but also thrive.
Whether you’re looking to better understand the impact of new technology or expand your network of suppliers, trade events provide an ideal springboard – including the highly-anticipated Seatrade Offshore Marine and Workboats Middle East, which features conference sessions on big data, technology and future exploration plans.
An arena for open discussion and relationship building, Seatrade Offshore Marine and Workboats Middle East is supported by the industry’s most passionate pioneers and inspiring innovators – each enthused about the journey towards an industry cemented by productivity, efficiency and performance.
Source: Rystad Energy - $200+ Billion at Stake as Offshore Sanctioning Kicks into Gear (June 11, 2019) - https://www.rystadenergy.com/newsevents/news/press-releases/200-billion-at-stake-as-offshore-sanctioning-kicks-into-gear/