2 Summary

Evaluation-of-projects-forside
04.11.2013

Most projects on the Norwegian shelf end up with development costs within the uncertainty range indicated in the PDO. Despite this, there are major cost overruns from the development projects overall. This is mainly caused by a few projects with substantial overruns. These projects are therefore responsible for most of the overall change in relation to the PDO estimates. However, major overruns in oil and gas projects are not unique to the Norwegian shelf. Recent studies reveal the same development internationally, both with regard to costs and implementation time.

The Skarv, Yme and Valhall VRD projects have experienced considerable overruns in both costs and implementation time. The costs for the Tyrihans and Gjøa projects also ended up higher than the unbiased estimate in the PDOs, but were still within the indicated range of uncertainty. The completion of these projects was in line with the implementation time in the PDOs.

The review shows that some important factors need to be in place in the operator’s project management in order to ensure successful implementation of the projects as regards time, costs and quality. Several of these factors are crucial in any project context, and are already known. The Investment Commission, appointed in 1998, highlighted the same factors in the report "Analyse av investeringsutviklingen på kontinentalsokkelen" (NOU 1999:11) <Analysis of investment development on the continental shelf – Trans.>.

Thorough, high quality work in the early phase is crucial for the rest of the project implementation to succeed. Several projects in this review have, for various reasons, been governed by schedules that are too ambitious from start-up of the project. Time allocated for early phase work has been insufficient. For several projects, Front-End Engineering Design (FEED) has not been sufficiently completed before project sanctioning. This has resulted in implementation of construction and procurement on a deficient basis. There are also examples of important new information not being taken into consideration as it would have resulted in a restart of the front-end engineering, thus delaying the project. There are also examples of operators lacking an internal decision programme for sufficient maturing of projects. There have thus been unclear quality requirements in the decision basis for the project sanctioning.

It is important that the projects have a clear contract strategy which helps ensure quality and progress. The operator’s follow-up and prequalification of suppliers must be clearly included as part of the operator’s contract strategy. The projects that succeeded with project implementation in this review cite these as important criteria for success. In major projects, the operator will not be able to carry out close follow-up of all parts of the project. There must therefore be certain prioritisations with regard to follow-up areas, while the rest of the project should undergo extensive prequalification of suppliers and sub-suppliers. This will reduce the risk of replacing suppliers along the way, that suppliers go bankrupt, that the quality of deliveries is not as expected, and that central technology elements are not delivered in accordance with expectations.

This review does not provide a basis for concluding that there is a correlation between the cost overruns and the geographical location of the fabrication site. Faults and defects in relation to contract specifications are, in the NPD’s assessment, primarily caused by the operator’s deficient follow-up of the project. This will apply whether the faults are caused by poor quality or the suppliers’ potential deficient understanding of Norwegian standards and regulations.

A high activity level has resulted in increased prices for input factors and scarcity of certain resources. For projects that have experienced difficulties, a high activity level has therefore had an amplifying effect. A high activity level has resulted in tighter conditions for the project implementation and, according to the NPD, is a contributing cause of the major time and cost overruns incurred in some of the projects in this review.