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Companies must change their strategy in the downturn

Upstream developments are often troubled by cost inflation and over-runs. SBC’s Eric Janvier* argues that as discoveries become more marginal and oil prices continue to fall, oil and gas companies must take a closer look at project management – and change the way they select and execute project

Megaprojects are intrinsically complex and tend to overrun in all industries. In the last decade, upstream projects have suffered more acutely. The first reason is structural: discoveries became more marginal, increasing the cost per barrel, and projects grew to cost tens of billions of dollars, increasing overruns. According to SBC’s annual Capital Projects survey, exploration and production companies multiplied their investment by four, and at the same time mega-projects over-runs quadrupled. The second reason relates to markets: with a higher oil price, most companies expanded ambitiously, drawing many mid-sized companies into unfamiliar territory. The combination stretched both the suppl

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