Most oil and gas projects are late and over budget

Less than a quarter of the new oil and gas projects on the UK continental shelf (UKCS) have been delivered on time since 2011, according to a report.
The OGA report found an average delay of ten months for oil and gas projects. Picture: Danny Lawson/PA WireThe OGA report found an average delay of ten months for oil and gas projects. Picture: Danny Lawson/PA Wire
The OGA report found an average delay of ten months for oil and gas projects. Picture: Danny Lawson/PA Wire

Analysis by the Oil & Gas Authority (OGA) found the projects are delayed by an average of ten months and are also coming in around a third over budget.

The findings come despite levels of capital expenditure being at an all-time high over the same period, according to the report, which said: “This analysis shows a trend of cost over-run and delay in project delivery.”

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The OGA’s paper, looks at the period from 2011 to 2016 and is described as a comprehensive five-year review of major UK oil and gas projects.

It states that the successful development of new fields is a “vital part” of ensuring the maximum economic recovery of oil and gas from the region.

The OGA carried out analysis of 58 major projects executed over the past five years. All are projects aimed at recovering hydrocarbons, rather than decommissioning.

The report stated: “Since 2011 fewer than 25 per cent of oil and gas projects have been delivered on time; with projects averaging ten months’ delay and coming in around 35 per cent over budget.”

The figures are arrived at when the true time and cost of a certain project was set against the estimates made in field development plans (FDPs) approved by government or the OGA.

The report continued: “In the same time period, levels of capital expenditure have been at an all-time high, averaging just over £12 billion annually money of the day (MoD) since 2011. This compares to £3bn to £6bn MoD per annum through the last decade; and £1bn to £2bn annually on decommissioning.”

The report found that the increase in investment was driven by a number of factors including a previously favourable oil price. Of the 58 projects looked at, production has started on 38 of them, while 20 are still being worked on.

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It said the figures may first appear to suggest that there are many projects currently under execution with a healthy future workload for the supply chain.

But it warned: “However, the reality is somewhat different. By Q1 2017, half of these current projects are forecast to have started production and there will be less than 10 major projects under execution in the UKCS.”

The report has outlined a number of recommendations and lessons to be gleaned from the findings.

OGA operations director Gunther Newcombe said: “In the last five years, over £40bn has been invested in new oil and gas projects. This brings considerable benefits in terms of financial contribution to the economy, supporting thousands of skilled jobs and safeguarding the UK’s energy supply.

“The OGA report presents common lessons harvested from various major projects and summarises recommendations that, if implemented, should improve future project delivery in the UKCS.”

Mike Tholen, Oil & Gas UK’s upstream policy director, said: “This report indicates that the industry is keen to learn from detailed reviews of past performance and is continuing to improve in its quest to deliver on time and on budget.”