How Can You Do More With Less?! Survival Strategies for Capital Projects in Low Oil Price Environment

The plummeted oil price environment provides a great opportunity for growth through acquisition. Oil and gas companies (especially NOCs) are busy with screening opportunities and targeting those which can improve the value of their portfolio.

Taking the advantage of current oil price environment (WTI $50/bbl, Jan 2015) may not be easy for oil sands players in Canada. With project cycles at around 3 to 5 years companies might have tough time stop spending capital on those projects that are in construction. Even stopping projects that are at pre-sanction stages means altering growth plans, and putting short-to-mid term production targets at risk.

An alternate strategy for Canadian companies with portfolios loaded with oil sands assets might be to take the advantage of the market forces to improve project development and execution capabilities.

Here are the areas that oil sands companies can focus on:

Projects Strategy

  • Portfolio; assess partnership and its impact on overall portfolio, prioritize revamp and debottlenecking projects versus greenfield projects.
  • Approach; reassess project targets, see if phasing would make sense, see if technology piloting (pad, plant, reservoir) can de-risk and improve value.

 

Projects Development and Execution Philosophy

  • Design; evaluate a bare-bone design where bell and whistles are bundled as sustaining projects, and pushed out to after start-up, modularize as much as possible (to allow less P&ID, less field work, faster/cheaper fabrication).
  • Capacity; revalidate reservoir characterization; assess benchmark reservoirs, revalidate RAM factors with O&M team and other stakeholders to ensure capacity assumptions, design margins, plant availability and up-time assumptions, make sure plant capacity is optimized for reservoir potential.
  • Risk; roll the risk register up from the functional to project level, use it at VIP rounds to see which risks can be mitigated at least cost/impact.
  • Supply Chain Management (SCM); involve SCM team to the project leadership meetings as early as possible to avoid surprises, get their input at concept phase to optimize cost, consider direct negotiation, assess the pros/cons of global sourcing.
  • Contracting; get the scope of the work as clear as possible to avoid inflated bids, consider offshore engineering houses.

 

Project and Organizational Performance

  • Project team; focus on project leadership, consider regular team buildings and one-to-one motivational chats, nurture the team culture and promote creativity among project team members.
  • Project KPIs; assess project KPIs with peer projects and reconfirm with sponsors to improve internal alignment, and enhance decision making process.
  • Decision gate process; validate the efficiency of the decision gate process in order to optimize and reduce non-productive time.
  • Interface management; consider PMIS implementation, pursue active IM among all stakeholder and as early as possible to identify and mitigate risks early enough. This can help you obtain an optimized design, improved construction efficiency, and optimized utilization of project resources.
  • Integration management; assess the synergies of the projects at BU level; identify synergies in SCM, contracting, human capital, infrastructure, logistics, etc.
  • Schedule; assess if sanction-to-startup can be optimized to improve project economics.

 

Related topics:

Canadian Oil Sands; Suncor, Cenovus and CNRL; Strategy Lessons to Share

 

Syd Nejad is an expert in commercial and operations of upstream projects. He has served the industry in a variety of roles including strategy and corporate planning, acquisition and divestiture, portfolio optimization, asset management, production/field operations; and reserves, reservoir/exploitation engineering.

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