Improved risk assessment and closer work with classification societies could slash escalating costs in offshore upstream oil and gas projects, according to one of DNV’s senior management speaking in China earlier this week.
“As much as 50 % of cost overruns and delays in offshore projects can be mitigated through better use of early risk reviews, technology qualification programs and classification schemes. This represents a great potential for new oil and gas developments,” said Remi Eriksen, executive vice president of DNV at an energy summit between Chinese and Norwegian representatives from governments and industry in Shanghai Wednesday.
The prospects of considerable savings were documented through international statistics from major rig and FPSO projects. The average cost overrun of new rig projects is some 35%, while the average delay of rig projects is 7 months. Most FPSO projects have cost overruns of 20 – 30 % and more than 6 months of delays.
“These overruns and delays represent uncertainties for the owner and the contractors, and for the financial institutions financing them. We believe that the challenge for the industry is to understand the complex risk picture better, price the risks more specific and to manage the risks appropriately,” Remi Eriksen said.
Based on its position as a global leader in providing risk management services to the oil and gas sector, DNV has identified the most common reasons for the cost overruns in offshore developments.
Common problem areas which drew special attention included: Orders placed before engineering was completed,
new technology without proper qualification and insufficient engineering for operation robustness and maintainability.
Eriksen also added that fabrication yards had to build up competence and resources during projects.
The executive vice president made it clear that these problem areas are relevant for offshore fabrication anywhere in the world.
Contracts between the different actors in fabrication projects seek to define the risk ownership and who pays for risk across interfaces. And the risk bill can be large – up to $0.4 for each $ CAPEX. Although contracts are drafted as specific and tight as possible, there is always room for interpretation and deficiencies. There are typically many complex interfaces (technical, commercial, organisational, geographical, etc), and these interface risks are typically large. This calls for a common and shared risk management process.
“A further complicating factor, which I do not think the industry has yet addressed properly, is the fact that the software component becomes more predominant. Now almost all systems are what we call Integrated Software Dependant Systems. We in DNV have develop a new Recommended Practice and a voluntary Class Notation for Integrated Software Dependant Systems – focusing especially on integration of software with various systems”, Eriksen said.
He underlined that taking risk is part of what companies must do to grow and create value for stakeholders. “The aim is not to eliminate risks, but to understand, price and better manage risks. We believe that early risk reviews, technology qualification programs and high quality classification and verification schemes are important risk management tools,” he said.
