Shanghai: “As much as 50 % of cost overruns and delays in offshore projects can be mitigated through better use of early risk reviews, technology qualification programs and classification schemes. This represents a great potential for new oil and gas developments,” said Remi Eriksen, Executive Vice President of DNV at an energy summit between Chinese and Norwegian representatives from governments and industry in Shanghai Wednesday.

Print this page Save as PDF
Remi Eriksen, Executive Vice President of DNV

The prospects of considerable savings were documented through international statistics from major rig and FPSO projects. The average cost overrun of new rig projects is some 35 %, while the average delay of rig projects is 7 months. Most FPSO projects have cost overruns of 20 – 30 % and more than 6 months of delays.

“These overruns and delays represent uncertainties for the owner and the contractors, and for the financial institutions financing them. We believe that the challenge for the industry is to understand the complex risk picture better, price the risks more specific and to manage the risks appropriately,” Remi Eriksen said.

Based on its position as a global leader in providing risk management services to the oil and gas sector, DNV has identified the most common reasons for the cost overruns in offshore developments.

Common problem areas were:

  • Orders placed before engineering was completed
  • New technology without proper qualification
  • Insufficient engineering for operation robustness and maintainability
  • Unclear part deliveries and documentation when transferring fabrication
  • Fabrication yards had to build up competence and resources during project
  • Interfaces not identified and understood

Remi Eriksen made it clear that these problem areas are relevant for offshore fabrication anywhere in the world.

Contracts between the different actors in fabrication projects seek to define the risk ownership and who pays for risk across interfaces. And the risk bill can be large – up to $0.4 for each $ CAPEX. Although contracts are drafted as specific and tight as possible, there is always room for interpretation and deficiencies. There are typically many complex interfaces (technical, commercial, organisational, geographical, etc), and these interface risks are typically large. This calls for a common and shared risk management process.

“A further complicating factor, which I do not think the industry has yet addressed properly, is the fact that the software component becomes more predominant. Now almost all systems are what we call Integrated Software Dependant Systems. We in DNV have develop a new Recommended Practice and a voluntary Class Notation for Integrated Software Dependant Systems - focusing especially on integration of software with various systems”, Eriksen said.

He underlined that taking risk is part of what companies must do to grow and create value for stakeholders. “The aim is not to eliminate risks, but to understand, price and better manage risks. We believe that early risk reviews, technology qualification programs and high quality classification and verification schemes are important risk management tools,” he said.

DNV in brief

DNV is a global provider of services for managing risk, with safeguarding life, property and the environment as its purpose.

Organised as an independent, autonomous foundation, DNV balances the needs of business and society, based on its independence and integrity. With its vision of creating a global impact for a safe and sustainable future for its customers and, ultimately society at large, DNV serves a range of high-risk industries, with a special focus on the maritime and energy sectors.

Established in 1864, the company has a global presence with a network of 300 offices in 100 countries, and is headquartered in Oslo, Norway. Its prime assets are the knowledge and expertise of its 9,000 employees from more than 80 nations.

Recognised as a highly respected third party providing trust and confidence for its customers’ stakeholders, DNV has been authorized by governments and national authorities to provide services in countries worldwide and has ambitions to grow further, especially in Asia which will be the engine for world economic growth in the years to come.

Today, its services in Asia cover the areas of maritime, energy, business assurance, IT global services, software and climate change. Having a network of 2,000 employees from 80 offices in Asia, DNV has the infrastructure, resources and contacts to grow further and assist its customers to manage their risks in a holistic manner.