Terri-Jane Yuzda


Mega-Project Management


APEGGA President

Last month I started talking with people about something that concerns me, a lot. The economy in Alberta is inextricably tied to our natural resources, and most of us make our living, directly or indirectly, from stuff that comes out of, or off of, the ground.

It sounds very simple, but really it is not. That is why we have the highest number of geoscientists and engineers per capita in Canada.

Really, it takes a lot of hard work and educated people to make it happen. But that’s not all. Without organization, enterprise, science, financial strength, engineering, manufacturing, fabrication, construction, infrastructure and many other things, including good, stable government, the stuff in the ground would be worthless. Indeed, for many years, it was worth nothing.

The conventional oil and gas business has been the backbone of Alberta’s economy for so long that we sometimes forget that it is a declining resource. What happens next? In the 1960s Great Canadian Oil Sands took a chance on new unproven technology, and on Alberta, in the hopes that it would pay off.

The provincial government of the day supported this venture with a royalty regime that recognized the risks and made it possible to develop a resource that at the time had huge potential. It still does. There are plans to double output from the oil sands over the next 10 years, and this will require an investment of some $50 billion.

Multiplier Effect
I have a hard time understanding numbers that big, so think of it this way. In round numbers, that means jobs for 100,000 people for 10 years. The multiplier effect means that a million people, directly or indirectly, will make their living from this work over the next 10 years.

Sounds pretty good, doesn’t it? I like the potential of Alberta; I have since we came here in 1980.

But it can be kind of scary if you ask yourself the question, “Well, what happens if something goes wrong?” Remember the National Energy Program? I do. I expect that everyone who was in Alberta in the early 1980s remembers the impact of the NEP.

The concern I have is not that our federal government could mess things up again, although they could, even with a new prime minister. My concern is much closer to home.

Mega-projects are proving to be very difficult to do. In the past few years we have seen stupendous cost and schedule overruns on some of these projects.
Now let’s be clear, I expect they will still make money, and lots of it. But companies will make a return on investment that is less than expected. And the results have been, and continue to be, unpredictable. That makes for risk. And that’s bad.

Conventional oil and gas is a risky business, but companies have learned to manage it. Always there are reserve volumes, commodity prices, operating costs, tax and royalty regimes, environmental and other liability concerns, and of course, the fundamental risk of drilling a hole in the ground and not knowing if you will find anything of value or not.

Different Risks
The oilsands are different. We know the oilsands are there. About 177 billion barrels of the stuff. That proven fact takes away several of the biggest risks.
The tax and royalty regime are stable and predictable, and that takes another big risk. Operating costs have been well established, and have steadily come down over the years, which takes away yet another of the risk items.

What’s left? In fact, one of the biggest risk items is the capital expenditure required.

And that is where my concern lies.

If you read the headlines you will know that there is some concern with cost overruns on these oilsands mega-projects. With overruns in the billions of dollars you can understand the concern.

As an engineer, I would just love to jump in, grab the problem by the horns with my own two hands, and wrestle it to the ground. There are lots of things you could work on. Scope definition, scope growth, labour availability and productivity, estimating, contracting strategy, execution strategy, and project management as a whole, are just a few of the things that would be on the list.

Personally, I would start with construction management. Most of the overruns have come in the field with a large increase in field labour person-hours. You may have seen the headline: Bad Productivity. That headline is misleading. Bad productivity is certainly a symptom of the underlying larger problem, that being construction management.

A far bigger concern is that loss of confidence in the entire industry centred on the capital cost overruns could result in all of us losing $50 billion worth of loss, 100,000 jobs for the next 10 years.

We need to do a better job of managing these projects, that much is clear.

What is not clear is just exactly what is being done about it. Different owners are trying, or will be trying, different contracting strategies. I have heard owners talking about “construction driven” projects and lump-sum contracting instead of cost-reimbursable.

Solutions Will Come
I really expect that over the next few years these concerns will diminish. We always find solutions to the challenges that are presented, then move on the next thing. So this will be no different.

APEGGA plans to initiate dialogue with some industry representatives in the new year, as we are expected to do by providing leadership in the practice of the professions in Alberta. If you have any comments or concerns on this please drop me a note. I look forward to hearing from you.

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