Project Cost Management Becoming Increasingly Critical to Oilfield Profitability

November 26, 2014 Audubon Companies

Over the past five years, the importance of cost control in the oil and gas industry has grown immensely. According to a report released in August by Ernst and Young (EY), roughly 65% of multi-billion dollar oil megaprojects are experiencing cost overruns, and nearly three-quarters are missing scheduled project deadlines.

The worldwide decline in crude prices in recent months certainly hasn’t made matters any easier. Many oil companies have already begun to see pressure on profit margins, and with a great deal of uncertainty about where commodity markets are headed, the role of project cost management in large ventures will likely become even more critical.

Complex projects that span multiple years are often the most exposed to market fluctuations, and as a result, they will present the most difficult challenges moving forward. Many companies that were planning for growth just a few short months ago are now shifting their attention away from long-cycle investments to focus more on capital efficiency.

Cost management services/solutions provide visibility into the state of a project, and in doing so, they make it easier for decision-makers to uncover issues before they lead to overruns that cut into profits. These services include project coordination, interface management, schedule development, third-party oversight, HSE support, progress measuring, estimating, and procurement.

The EY report concluded with EY’s Global Oil and Gas Advisory Leader, Axel Preiss, saying:

“Companies can no longer rely on oil and gas price increases which in the past have masked many of the consequences of megaproject overruns. Unconventional discoveries have already had an impact on the economic viability of many megaprojects and securing capital is only going to become more difficult unless companies are able to consistently deliver on deadline and within budget.”

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