Embracing PPM methodologies in execution and selection of projects can help upstream firms meet ROI targets
Since June, oil spot prices have been in precipitous decline with Brent crude sitting around $86 per barrel as I write this post. This is a drop of almost one-third since the 2010-11 peak when prices over $120 were the norm. Many experts cite weak global demand and growing supply as key forces depressing the market price. Meanwhile mega-projects across the world are plagued with set-backs and cost-overruns. The massive Kashagan project in Kazakhstan, which was planned to be completed in 2006, has cost $43 billion to date – a cost overrun of $30 billion. Recent technical challenges have put off any hopes of production until 2016 at the earliest.
Identifying risks for E&P firms is an exercise in PEST-analysis with local governments, macro-economics, labor and technical challenges all threatening a positive return on investment. The need for successful execution of upstream projects has never been greater. Strengthening Project and Portfolio Management discipline can help firms maintain control by providing a platform that allows for better conceptual cost and schedule estimates, that supports collaboration across the firm and its sub-contractors, and that provides a single-source of truth for reporting project progress and risk monitoring.
Whether working with unstable governments, exploring deep-water opportunities, or maintaining rate of production in unconventional onshore shale formations, the future for E&P firms lies increasingly in the unknown. Embracing PPM methodologies in execution and selection of projects can help upstream firms meet ROI targets even if the movement in crude spot prices continues to boggle economists.