Early and robust project planning, and the alignment of competencies between owner and contractor project teams can propel a project to genuinely best in class status.
In the current economic climate, many planned energy projects are not reaching the execution phase – GCC energy project activity between February and April of this year for example, saw a realization rate of as low as c. 30% between planned and actually awarded projects. In addition, with more and more mega projects being awarded in the region, the complexity and scale of those projects that are being undertaken cause unprecedented risks and require the coordination and management of a myriad of interfaces over extended periods of times, across various geographies and with multiple stakeholders.
Further to the ‘New Times, New Thinking for Project Owners’ article, which can be found in the ‘Related Articles’ section in the right hand column of this page, which highlighted the need for project owners to consider new forms of contracting and risk mitigation strategies to adapt to the current market environment, another key question for project owners today is; how to achieve best practice project execution and ensure project success across the whole project life-cycle.
International Oil Companies (IOCs) usually have rigorous and standardised processes for planning, design as well as procurement and execution management in place to support the logistical management of large-scale energy projects. The Middle East, however, is typically characterised by a lack of standardisation and automation. This is largely due to the fact that a number of National Oil Companies (NOCs) are only starting to define what best practice means for them and are beginning to determine how they wish to implement these respective standards and processes. As IOCs are not always involved in projects or are minority shareholders in the Middle East, it is not always possible for their best practice standards that are globally tried and tested, to be utilised and the benefits reaped.
Given the number of projects that were completed in the MENA region over the past five years, Contax Partners research suggests that only a limited number of these were successful enough to qualify as best practice. Such successful projects feature certain characteristics throughout their life-cycle, including but not limited to:
- Clear scope definition that undergoes minimal changes in the execution process
- On schedule and within or below budget
- Adherence to quality standards
- Strong safety and environmental performance
While the need for the above mentioned standardisation is important as a foundation, many other factors affect the success of a project and its categorisation as ‘best practice’.
Looking at the local market, the drilling for Saudi Aramco’s Khurais Central Processing Facilities Project for example, was completed in February 2009, 10 months ahead of the actually scheduled three year duration. The largest integrated project under Saudi Aramco’s expansion program aimed at increasing oil production by the end of the decade profited from several factors including an effective communication strategy across project interfaces, the formal implementation of lessons learnt from past projects and the high degree of continuity of the owner and contractor project teams.
Another strategically important project that was successfully completed in 2009 and saw its inauguration on May 12th of 2010 is the Al Khaleej Gas II (AKG II) project. AKG II is an integrated project between Qatar Petroleum and ExxonMobil that is operated under an agreement with RasGas as the project’s contract operator.
The success of this project was largely driven by a high level of alignment and cooperation between the project partners, a rigid planning and contractor selection process and the selection of a contracting and execution strategy that provided a win-win situation for both the contractors and the project owners. An example of this was where ExxonMobil utilised their ‘Fast Drill’ technology to considerably reduce the schedule and overall CAPEX associated with the drilling of the offshore wells.
Learnings should not only be taken from successfully completed projects however, but also from challenged projects and the vigilant observation of projects currently being executed. Once completed, Pearl GTL will be the world’s largest plant converting natural gas into clean-burning liquid transport fuel, natural gas liquids, ethane and other products. The EPC contract was awarded in 2006 and the project partners went ahead with the execution of the project even during the peak work load times of the contracting market.
Despite exceeding their original budget, the project is proceeding in line with Shell’s expectations at the time of final investment decision with an expected delay of potentially one year. The relative success of a project of such unprecedented scale in adverse market conditions can be attributed to the quality of the owner and contractor project teams, their close relationship and thus optimal alignment.
Although the project may meet its key challenges with the start-up and commissioning, it is expected to be a success once it comes on line. The Shah Gas Project also remains a project to watch, especially given the strategic importance of the gas processing sector in the face of regional gas supply shortages. In view of the recent changes with regards to ConocoPhillips’ (COP) pull out and the scope changes around the handling and transportation of the sulphur, the risks and challenges surrounding the project could be considerable but could provide a number of learnings for other project owners.
Generally, the question of best practice project execution is of primary interest for project owners but also contractors as they plan their mitigation strategies for project, market, human and environmental risks. Non adherence to best practice principles opens a project up to risks that can have significant economic implications.
Over the past twenty five years, Contax Partners has identified a number of elements that can help project operators to plan for and deliver sustained best practice project execution and pre-empt market realities in the most efficient and competitive way.
These success elements include, amongst others: early and robust project planning, the alignment of competencies between owner and contractor project teams, a stringent contractor selection and due diligence process and the selection of a contracting strategy that optimises and balances project needs and risk considerations. Whilst implementing these elements is a complex task, project owners who have begun to embrace the meaning of best practice, have already started to reap the benefits from a financial, competency and project execution perspective.
To further discuss how Contax Partners can help you plan for and execute your projects successfully, please contact Ann-Marie Carbery Antoun at AnnMarie.Carbery@contaxgroup.com. We look forward to speaking with you!
