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Eighty nine percent of projects in the Middle East exceed initial budgets with the majority of projects having overrunning costs, according to the latest report by Ernst & Young UK
Looking at 365 oil and gas projects across the globe, the report also found that the majority of oil and gas mega-projects are over budget and behind schedule.Another major finding was that the cummulative costs of the projects ran $500bn over initial estimates, or 59% higher than initial budget projections.
Collective costs for the projects ran over initial projections by $1.7 trillion, up from $1.2 trillion. About 64% of mega-projects experience cost overruns and 73% are hit with scheduling delays.
Mega-projects in the US have the smallest percentage compared to the rest of the world, but still relatively high, in terms of exceeding initial costs- 57% projects’ have budgets that overrun. The majority of mega-projects are upstream with an average cost of about $6.6 billion, the report said.
There are currently 75 mega-projects in North America totaling $482 billion in investments. The Asia-Pacific region has the most mega-projects with 99 currently listed totaling $945 billion in investments. Project delivery success is also decreasing, especially in segments such as deepwater where projects are more logistically complicated, risky and expensive.
“Poor execution can potentially result in the project being economically uncompetitive and negatively impacting an organization’s overall financial results,” EY’s oil and gas advisory leader Axel Preiss said.
As part of the study, 365 projects with a proposed capital investment of above $1bn were identified in the upstream, LNG, pipelines and refining sectors. The project life cycle, before and after the final investment decision was considered for the findings.
