Managing the efficiency of foreign engineering contracts: A study of a Norwegian and South Korean project interface

Abstract

Oil & gas exploration and production industry in North Sea has greatly been challenged over the last decade with increasing cost profiles. This condition, together with relatively low oil price has begun to squeeze the commercial margins of a large number of assets. Foreign engineering contracts have become a common trend in this context seeking significant cost advantage during the engineering phase of major offshore production assets. However, this popular strategy has been met with serious debates due to many critical issues experienced in complex engineering projects. In last few years, many Norwegian offshore oil and gas field development projects were awarded to Asian contractors. Despite the important commercial need to ensure cost-effective projects, it has been revealed by reports and analyses that most of the projects have failed to deliver on time and budget during its execution phase. This makes economics of projects on NCS more vulnerable to recent oil market downturn. At the same time, it has raised concerns on the efficiency of coordination and communication management process of large-scale projects under the EPC contract regime. This study investigated the key elements contributing to project coordination and communication challenges and thereby causing delay in schedule and cost overrun of the EPC projects awarded to shipyard in South Korea. In order to identify the key elements, principal data were gathered using in-depth, open-ended, guided interviews with Norwegian operators, sub-contractors, and authority, involving those who have long experience on EPC projects awarded to South Korean yards. The paper will define and discuss how the key elements regulate the efficiency of complex engineering projects involving Norwegian operators, South Korean EPC contractor, and sub-contractors from various countries. It will also suggest how to improve the current situation and enhance overall project performance.