Management: Applying Integrated Project-Management Methodology to Hydrocarbon-Portfolio Analysis and Optimization

Aligning hydrocarbon investments with constantly shifting business goals and priorities continues to be a major challenge for E&P staff. In spite of the best efforts of international oil companies (IOCs) to rebuild in-house engineering and project-management capability, an unacceptable number of oilfield-development initiatives continue to either fall short of or simply miss their targets. This is exacerbated by insufficient supply of technical staff with experience in managing large and complex projects. There is no end to the range of factors that can contribute to project failure, and as a result, the industry has invested heavily to improve the predictability, producibility, and quality of their projects. While techniques such as estimating, risk assessment, process management, deliverables management, and project management improve project execution, they fail to address the more critical issue of scheduling and achieving satisfactory cost performances.

Petroleum exploration and field development deal with many unknowns. With so many risks and uncertainties associated with income and life-cycle cost factors such as potential reserves, capital expenditures (capex), operating expenditures (opex), production rate, oil and gas pricing, geological success ratios, and intervention-vessel expenses (especially for subsea wells), it is extraordinarily difficult to forecast earnings and cash flow for even the simplest of prospects. The management of risk in petroleum ventures always has been a difficult subject, and it is even more important in these days of massive cost overruns and overwhelming delays.

Although petroleum upstream operations have not been a traditional area for the conventional practice of project-management techniques, recent literature has shown an increasing rate of embracing project-management principles in exploration, drilling, and production operations. The techniques that traditionally have been limited to construction-type projects are now being applied to petroleum operations with increasing frequency.

In the past, E&P staff were charged with the responsibility of exploring and producing hydrocarbons. However, the present challenge has gone beyond finding and developing barrels or molecules: They now must make complex decisions about managing technical performance, risk, economics, and corporate strategy. Decisions are best made when projects are appropriately risk-evaluated, consistently described in economic and technical terms, and assessed relative to how they interact through time with other investments to deliver value to the company. Merging risk assessment and operational management is a critical first step.

The project objectives, or the measure of project success or failure, are often defined in terms of cost, schedule, and technical performance. Risk management, on the other hand, is intended to increase the likelihood of attaining these objectives by providing a systematic approach for analyzing, controlling, and documenting identified threats during both the planning and execution of a project.