The economics of the oil and gas industry seem pretty simple at face value:

  1. Find your commodity of choice in the ground;
  2. Dig a hole and suck it out;
  3. Turn it into something useful; and
  4. Sell it.

It’s not quite that simple, and there are a few unprecedented issues that oil and gas companies face today that never would have been imagined 30 years ago—or even five years ago.

For the past three to four decades there has been a steady hum from “peak oil” prognosticators predicting the end of fossil fuels. Gone are the days of Jed Clampett and the Beverly Hillbillies hunting for dinner, missing the possum and shooting a hole in the ground resulting in a gushing fountain of black gold. You can’t just poke a hole in the ground, cross your fingers and hope for the best these days.

Luckily, as easy-to-find oil becomes less available, new methods of extraction have come to the forefront. With oil sands and shale oil and gas projects coming online, increased oil production has come from the exploitation of previously unreachable locations. Suddenly there’s an enormous new supply of resources, with no end in sight. The cost of extracting product using unconventional methods has dropped substantially, making these projects economically feasible. Oil and gas are showing up in places and at a scale that the general public would never have imagined. Great news, right?Yes, but…

Midstream blues
In the U.S. and Canada, we suddenly have a great deal of product, with few avenues to get it to market. Landlocked pools of oil and gas are showing up in places where the supply is pushing the limit and putting massive pressure on the existing midstream infrastructure. Add to this a massive reduction in refineries over the past few decades, and companies are suddenly in a situation where they have lots of product to sell, customers willing to pay, but no way to deliver the product. From a 30,000-foot view it’s no big deal—just build a bunch of midstream facilities and pipelines and away you go!

Unfortunately it’s not quite that easy. Projects take time to get up and going. It’s not unusual to see a pipeline project, for example, take five to eight years or more to get through permitting and construction. And that’s assuming the project gets the regulatory green light at all (Keystone XL and Enbridge Gateway pipelines are prime examples). More challenges include the scale and capital expense of a large project while commodity prices are under pressure from the glut of product and an inability to get product to market. We have a chicken and egg scenario on our hands that would make your head spin. Companies are faced with an interesting conundrum: If we build it, we’ll get higher prices, but we can’t afford to build it until we get higher prices.

The good news is that many great companies do make their way through the miasma of economic and regulatory hurdles, and there are many midstream projects in the pipeline (pun intended) right now.

The blues continue
The pressure to get things built is causing a number of unique problems. Many midstream companies are growing at an unprecedented rate to address the increased demand for the construction of new pipelines and facilities while dealing with all the inherent human resources issues and growing pains. As part of the rapid growth, they are facing larger, more complicated projects and far more concurrent projects.

Understandably, they are faced with a level of project-controls sophistication that their legacy tools and processes just can’t handle.

So here’s the situation and what they may be facing today:

Project controls pain
Many companies are facing a situation where their IT infrastructure for project controls just isn’t scalable to meet the increased demand of dealing with a very large project or a portfolio of complex projects running at the same time. Often midstream organizations have grown up with homegrown systems and error-prone spreadsheets. This was acceptable with just a few small projects, but things begin to unravel as organizations scale and add more users, add more projects and increase project complexity.

People pain
Along with rapid growth comes a need for more qualified people. Many companies are having difficulty staffing their projects with in-house expertise and being forced to sub-contract or “rent” man power. Capturing costs with so many people, not to mention so many “new” contracts, can cause massive headaches, as each company has different cost rates and cost codes, which need to be tracked to a specific project. Excel-based cost capture tools can’t keep up with the increased load. It’s not uncommon for subcontractors or “rented” expertise to wait months and months for their timesheets, invoice payments and paychecks, which understandably creates a stressful environment for all parties involved.

Process pain
Lack of auditability and ownership of information is yet another concern that comes up when dealing with conflicts, particularly in the case of joint ventures where many stakeholders are involved, often with conflicting interests. Change orders are almost always expected with projects of this magnitude, and without proper records of transactions, commitments and approved changes, the projects can spin out of control very quickly.

Communication pain
Progress reporting is another serious concern. Many companies have traditionally managed their reporting requirements using their legacy systems. With an increasing number of projects on the go, many companies find themselves overwhelmed. It’s not unusual for an average-sized company to have 15 to 20 projects at the same time, including plants, processing units and pipelines. These legacy systems do not provide enough visibility at the project level, and they lack a means to complete a meaningful roll-up of information at the portfolio level.

This lack of visibility leaves project executives trying to make informed decisions using incomplete information. This leads to cost overruns and late work at the project and corporate level.

Most organizations also face difficulty with patchwork systems within their IT ecosystem, which results in project information silos and no one having access to the complete picture. As a result, these information pockets may satisfy the needs of an individual department, but from an overall project-execution perspective, make it extremely difficult to get the right information at the right time to the right people to make the best decisions.

Faced with so much pain, what’s a company to do?

The answer
The reality is that the most effective approach to address these various “pains” is to adopt a robust commercial project-controls system. Many are cloud-based and do not require IT departments to add more hardware or infrastructure.

These systems allow full integration across business units providing sub-project, project and portfolio level visibility through standard reports and integrated dashboards. They can be ideal for clients with a variety of projects at different locations, helping to ensure that both project teams and executive management get the information they require as they need it.

  • Here are the potential benefits from use of a project-controls system: ROI increase of existing investments;
  • Project-communication improvement;
  • Real-time visibility for all parties;
  • Automation and standardization of numerous business processes; and
  • Assist in the delivery of on-time, on-budget projects, with fewer errors and far less headaches.

Mark Anderson is responsible for business development at Coreworx, which provides integrated project information and cost control solutions for large capital projects in the oil and gas, power and mining sectors.