Thesis: Project Management in the Oil Industry

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Project Management in the Oil Industry

The oil industry has had to adopt various tools in order to survive intense competition in the international market. Conservative efforts to get more profits and gaining customers by relying on size and strength are no longer applicable and only those companies who have successfully implemented project planning and management have been able to get an edge in this industry. Project management is typically a repetitive cyclical procedure which includes planning, implementing and controlling a series of tasks. Project planning and management consists of various processes which can be broadly placed in two parts. These are (a) Process designing to get the desired result, and (b) preparing a schedules and budget for the process. Process definition involves definition of scope, definition of Project, time estimation and definition of task. Budgeting and scheduling involves task sequencing, estimation of duration, development of schedule, cost and resource estimation and budgeting of cost and resource. (Braunschweig; Day, 141)

According to many experts, new practices in Project Management including alliances, growth teams, turnkey, and shared risk and reward, have contributed immensely to the growth of the oil industry. (Kwiatkowska; Netherlands Institute for the Law of the Sea, Dotinga; Molenaar; Elferink; Soons, 66) the use of quantitative decision analysis as a tool of project management has been in wide use in the oil exploration industry for more than two and a half decades. This is because the risks and rewards related to the oil industry are comparatively higher than in other industries. Moreover, only large companies like petroleum companies could afford to invest in appropriately complex computer hardware and software at a time when these were relatively unaffordable and inaccessible for smaller companies. Proper project management culminating in the discovery of an extremely productive oil field was worth many hundred million dollars justifying the investment in project management tools and techniques. This is the basic reason why oil production and exploration companies are always on the lookout for potentially productive locations for oil and this is where proper project management comes in. Just like a successful drill can promise millions of dollars, an unsuccessful project can result in a loss of millions. A drilling lease is extremely high and so are the daily rates and the mobilization of drilling rig. (Havranek, 244)

Project management has three basic business goals - maintaining the schedule, reducing risk and control costs. The relative importance of these goals changes with the perspective of the company. A producer company would give more importance to schedule maintenance because of the magnitude of its product stream. However, companies associated with the engineering aspect of the oil industry would be more interested in cost control since this is one area which would yield maximum returns. (Cook, 18)

Even though project planning and management is required in almost every aspect of the oil exploration, production and delivery systems, there are certain key areas of the oil patch which require special mention in terms of project management. One such area relates to the creation, verification and maintenance of contingency planning for all operational areas. Project planning techniques can help develop effective contingency planning which can guarantee that the right people and equipment and are accessible on time. It also ensures that the responders can concentrate on the planning procedures in times of emergency. Project planning and management is also required during construction planning. It plays a significant part in the coordination of contractors, determining work dates, outlining the scope of work and establishing the basis on which bids are placed. Construction projects may range from smaller tasks like constructing storage tanks to large projects like construction of offshore platforms and continental pipelines. (Braunschweig; Day, 145)

Some of these projects may even be contracted out by the main companies. However, project management can prove to be beneficial to most of these projects even if they are contracted out. This will help in timeliness, completeness and effective communication between the stake-holders. Even if considered trivial, project management techniques are also extremely important in planning repairs, overhauls and maintenance. These also have the same attributes as construction projects and require high-quality project management techniques. Facility changes can result in unanticipated disruptions if the project is not properly planned and managed. (Braunschweig; Day, 145)

In the oil industry, project management is also widely used in the planning of IS or Information Systems development. Project management in this area is helpful in improved estimation of financial, resource and time requirements. Most companies use project management tools and techniques only for significantly big projects. However, smaller projects also gain from proper planning and management. Contingency and construction planning are the two key users of project management since there is a high degree of unpredictability and complexity in these areas leading to missed objectives and frequent overruns. Other areas of the oil industry which can gain from project management are exploration and production. Exploration planning may involve obtaining the project's cost-benefit by finding the financial and resource requirements, carrying out tasks in a sequence which is dependency-based, organizing people and multiple resources, communicating the constituents and objectives of the project to the management and employees, and project reworking in order to adjust the changes made to project objectives. (Braunschweig; Day, 146)

Project management in the area of exploration can range from the strategic standpoint to the tactical standpoint. The strategic standpoint involves the decision about which of the potential prospects to explore. The tactical standpoint includes the decision about the ways and means of data collection for a particular prospect. Production is also one major area where project management is required. However, those aspects of production which are carried out on a day-to-day basis may not require extensive project management. Processes like construction, drilling, platform maintenance, work-overs, strategic production plan and installation of EOR or Enhanced Oil Recovery do require a significant amount of project management. The advantages of using project planning and management in all these areas provides significant benefits in terms of better communication of vision and strategy, improved anticipation of resource requirements, enhanced cost-benefit analysis, and more flexibility towards change. (Braunschweig; Day, 147)

Activities that are not directly connected to exploration and production of oil may seem not to require project management. However, administrative tasks like coordinating large service jobs, organizing training, seminars and workshops are also considered as projects which require proper planning and management. These techniques can also prove to be beneficial when the administration is being re-engineered. Since the re-engineering of the administration as well of processes can affect the entire organization as well as suppliers as well as consumers, it requires good project management. However, like everything else in the world, project management has its own share of disadvantages. A major disadvantage of project management is that it is tough and challenging and many project managers lack the knowledge, skill or initiative to embark on tough projects with proper planning and management. (Braunschweig; Day, 147)

Many managers attempt to gauge the level of difficulty of a project before taking the plunge which may eventually lead to scuttling of the project. Project management requires an extremely complex set of skills to be possessed by the project managers. It requires a comprehensive knowledge and understanding of the project objectives as well as excellent communication skills in order to communicate these objectives. It also calls for an intuitive power in terms of having the knowledge of possible situations that may happen and the ways and means to counter such unforeseen or unpredictable situations. In addition, a project manager must also have the capability to find out how change may influence the project and the steps to take to effectively accomplish the project even if there are missed objectives. Another disadvantage is that the tools available to support project management and planning in the oil industry are still relatively primitive which makes the entire process all the more tricky. Then there is the problem of getting adequate value out of the project management process in order to justify the time, effort and investment that goes into it. (Braunschweig; Day, 150)

Another problem with project management is that even though companies do recognize that it may provide necessary solutions to various challenges in the oil industry, they do not put sufficient emphasis on the selection of the right leaders for this complex post and do not focus on proper training for the development of these skills. In addition, most of the state-of-the-art technologies for project management are grossly inadequate to provide adequate benefits for each and every project for which planning and management efforts are undertaken. Theoretically, project planning and management is supposed to be a panacea for most of the problems plaguing a project but the real world makes the process even more difficult. There is a significant amount of uncertainty in the real world which often distorts even the best made plans. However, using good and appropriate tools may offset this uncertainty to some extent. Project management is a high - overhead activity… [END OF PREVIEW]

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