How to Reduce Costs and Manage Risk in the Upstream Oil & Gas Industry with Enterprise Project Portfolio Management

The upstream petroleum industry today faces unprecedented waves of added costs and new regulatory challenges as it tries to navigate the shoals of risk management toward preserving its bottom line. The historical risk factors—e.g., commodity price volatility, geopolitics, etc.—facing the industry have become more complex. Oil and gas price movements are now tethered more to macroeconomic influences than they are to physical supply and demand factors; that makes hedging through commodity-related financial derivatives—a key risk management tool—a dicier proposition. A " brain drain, " aka the " Great Crew Change, " was a critical issue just a couple of years ago for oil and gas companies seeing their pool of qualified personnel dwindle; it will return with a vengeance as activity continues to rebound with economic recovery. Sociopolitical concerns are also changing the playing field with such emerging issues as resource nationalism and foreign investment restrictions. A growing tendency is seen among many nations to capture more rent from the development of hydrocarbons—both out of economic impulses as well as a result of market intervention to promote other energy sources for environmental and energy security reasons. At the same time, huge capital costs have grown even larger, given the industry's increasing proclivity for mega-projects that leverage economies of scale. Mega-projects have become commonplace in the upstream oil and gas industry, as activity fans out in more challenging physical environments. With the expanding project scope comes bigger challenges to manage project risk. Offshore oil and gas development increasingly tilts toward the mega-project scale because of the burgeoning exploratory success the industry is enjoying in ultra-deep waters, where development project costs routinely run into the billions and schedules can span half a decade or more. Such projects entail enormous challenges in logistics, planning, scheduling, communications, data management, and risk analysis. With mega-projects comes a great need to better collaborate and share information across the value chain that ultimately will drive down costs and increase the accuracy of delivery dates. Owner-operators, contractors, and suppliers working in the upstream petroleum industry all must find innovative solutions to minimize complexity and risk in these massive undertakings, as it becomes a top priority to have all players on a project team work more closely together. All of these factors and more are adding costs or reducing revenues and creating new risk management challenges for oil and gas companies. Add to those concerns a greatly heightened regulatory …