Project Management in the Oil and Gas Industry

Introduction to Project Management in the Oil Industry

The oil industry has had to adopt various tools in order to survive intense competition in the international market. Conservative efforts to gain profits and customers by relying on size and strength alone are no longer applicable. Only those companies that have successfully implemented project planning and management have been able to gain an edge in this industry. Project management is typically a repetitive, cyclical procedure that includes planning, implementing, and controlling a series of tasks. Project planning and management consists of various processes, which can be broadly placed in two parts: (a) process design to achieve the desired result, and (b) preparing schedules and budgets for the process. Process definition involves defining the scope of the project, time estimation, and definition of tasks. Budgeting and scheduling involves task sequencing, estimation of duration, development of a schedule, cost and resource estimation, and budgeting of cost and resources. (Braunschweig; Day, 141)

According to many experts, new practices in project management — including alliances, growth teams, turnkey arrangements, and shared risk and reward — have contributed immensely to the growth of the oil industry. (Kwiatkowska et al., 66) The use of quantitative decision analysis as a project management tool has been in wide use in the oil exploration industry for more than two and a half decades. This is because the risks and rewards related to the oil industry are comparatively higher than in other industries. Moreover, only large companies like petroleum corporations could afford to invest in appropriately complex computer hardware and software at a time when these were relatively unaffordable and inaccessible for smaller companies. Proper project management culminating in the discovery of an extremely productive oil field was worth many hundreds of millions of dollars, justifying the investment in project management tools and techniques.

This is the basic reason why oil production and exploration companies are always on the lookout for potentially productive locations for oil, and this is where proper project management becomes essential. Just as a successful drill can promise millions of dollars, an unsuccessful project can result in a loss of millions. A drilling lease is extremely costly, as are the daily rates and the mobilization of a drilling rig. (Havranek, 244)

Project management has three basic business goals: maintaining the schedule, reducing risk, and controlling costs. The relative importance of these goals changes with the perspective of the company. A producer company would give more importance to schedule maintenance because of the magnitude of its product stream. However, companies associated with the engineering aspect of the oil industry would be more interested in cost control, since this is one area that yields maximum returns. (Cook, 18)

Even though project planning and management is required in almost every aspect of oil exploration, production, and delivery systems, there are certain key areas of the oil patch that deserve special mention. One such area relates to the creation, verification, and maintenance of contingency planning for all operational areas. Project planning techniques can help develop effective contingency plans that guarantee the right people and equipment are accessible on time. They also ensure that responders can concentrate on planning procedures during emergencies.

Project planning and management is also required during construction planning. It plays a significant role in coordinating contractors, determining work dates, outlining the scope of work, and establishing the basis on which bids are placed. Construction projects may range from smaller tasks like constructing storage tanks to large projects such as the construction of offshore platforms and continental pipelines. (Braunschweig; Day, 145)

Key Application Areas of Project Management

Some of these projects may be contracted out by the main companies. However, project management can still prove beneficial even for contracted projects in terms of timeliness, completeness, and effective communication among stakeholders. Even for seemingly trivial tasks, project management techniques are also extremely important in planning repairs, overhauls, and maintenance. These tasks share the same attributes as construction projects and require high-quality project management. Facility changes can result in unanticipated disruptions if the project is not properly planned and managed. (Braunschweig; Day, 145)

In the oil industry, project management is also widely used in the planning of information systems (IS) development. Project management in this area supports improved estimation of financial, resource, and time requirements. Most companies use project management tools only for significantly large projects. However, smaller projects also benefit from proper planning and management. Contingency and construction planning are the two key users of project management, since there is a high degree of unpredictability and complexity in these areas, leading to missed objectives and frequent overruns.

Other areas of the oil industry that can benefit from project management include exploration and production. Exploration planning may involve obtaining a cost-benefit analysis by identifying financial and resource requirements, carrying out tasks in a dependency-based sequence, organizing people and multiple resources, communicating the constituents and objectives of the project to management and employees, and reworking the project to adjust for changes in project objectives. (Braunschweig; Day, 146)

Project management in exploration can range from the strategic to the tactical. The strategic standpoint involves the decision about which potential prospects to explore. The tactical standpoint includes decisions about the ways and means of data collection for a particular prospect. Production is also a major area where project management is required. Processes such as construction, drilling, platform maintenance, work-overs, strategic production planning, and installation of Enhanced Oil Recovery (EOR) systems require a significant amount of project management. The advantages of applying project planning and management in all these areas include better communication of vision and strategy, improved anticipation of resource requirements, enhanced cost-benefit analysis, and greater flexibility toward change. (Braunschweig; Day, 147)

Activities not directly connected to exploration and production may appear not to require project management. However, administrative tasks such as coordinating large service jobs and organizing training, seminars, and workshops are also considered projects requiring proper planning and management. These techniques can also prove beneficial when administration is being re-engineered. Since the re-engineering of administrative and operational processes can affect the entire organization as well as suppliers and consumers, it requires sound project management. (Braunschweig; Day, 147)

Like everything else, project management has its own share of disadvantages. A major disadvantage is that it is tough and challenging, and many project managers lack the knowledge, skill, or initiative to embark on complex projects with proper planning and management. (Braunschweig; Day, 147)

Many managers attempt to gauge the level of difficulty of a project before committing, which may eventually lead to the project being abandoned. Project management requires an extremely complex set of skills. It demands comprehensive knowledge and understanding of project objectives as well as excellent communication skills to convey those objectives. It also calls for intuitive foresight — the ability to anticipate situations that may arise and the means to counter unforeseen or unpredictable events. In addition, a project manager must have the capability to determine how change may influence a project and what steps to take to accomplish the project even when objectives are missed.

Challenges and Disadvantages of Project Management

Another disadvantage is that the tools available to support project management and planning in the oil industry are still relatively primitive, making the entire process considerably more difficult. There is also the challenge of deriving adequate value from the project management process to justify the time, effort, and investment required. (Braunschweig; Day, 150)

Another problem with project management is that, even though companies recognize it may provide necessary solutions to various challenges in the oil industry, they do not place sufficient emphasis on the selection of the right leaders for this complex role, nor do they focus on proper training to develop the required skills. In addition, most state-of-the-art project management technologies are grossly inadequate to deliver adequate benefits for every project for which planning and management efforts are undertaken.

Theoretically, project planning and management is supposed to be a panacea for most problems plaguing a project, but real-world conditions make the process even more difficult. There is a significant amount of uncertainty in the real world that often distorts even the best-made plans. However, using good and appropriate tools may offset this uncertainty to some extent. Project management is a high-overhead activity that requires deployment of proper tools, techniques, skills, and focus in order to derive any benefit from it. (Braunschweig; Day, 150)

Most current-generation project managers expect project management tools to furnish them with near-real-time knowledge to facilitate decision-making. Some of these tools — such as DOFF, "Field of the Future," "Smart Fields," Microsoft's "Oilfield Connectivity," and i-Fields — are currently being examined by exploration and production oil companies. Some of these tools have the capability of generating information from apparently incongruent data and helping managers take important decisions based on that information. (Oilfield Connectivity — Capturing the Value of the Digital Era)

There is a substantial amount of risk in oil exploration and production since the target is located many thousands of feet underground. A number of factors can cause uncertainties and risks, including weather, personnel, geology, safety, and the availability of tools and equipment. Agility is an important requirement in the oil fields, especially for the upstream business. To improve agility, it is essential that proper project data is maintained in an organized manner. It is not enough merely to maintain data; it must also be available to the required staff in real time to facilitate decision-making. Project data is usually stored across several systems, which may be spread across various locations in different parts of a country or continent. This may give rise to various problems. Both agility and decision-making can be enhanced by maintaining a centrally located project data set accessible to all project team members. (Cook, 20)

Moreover, this data set should be preserved for use by future executives, as crucial data is often lost when project managers leave or retire. Engineers and producers agree that critical data sharing and collaboration are very important. Risk management and cost control are also essential elements of project management. Many unforeseen surprises have confronted oil companies in recent times, necessitating improvements in project processes to accomplish objectives within limited budgets and timeframes while reducing uncertainties and risks. Change management is also an important aspect of project management, since the design phase of most projects is finished by the time construction starts. Therefore, any changes to project design must be carried out in collaboration among the fabricator, owner, and engineers. This can result in significant gains in terms of increased margins, enhanced savings, and better schedule adherence. (Cook, 20)