Front end loading: misunderstood or misapplied?

Abstract

Historically, oil and gas projects have struggled to achieve promised outcomes. Research has demonstrated that a good predictor of project outcomes is the level of front end loading (FEL) achieved at the final investment decision (FID). Specifically, projects with high levels of FEL have more predictable costs, shorter schedules and better production attainment. Anecdotally, however, the application of FEL within the industry is patchy, with many companies advocating its use but allowing projects to pass decision gates with incomplete levels of FEL. To understand why this occurs, the authors have interviewed more than 30 senior personnel from a range of oil and gas companies, asking them a series of questions about their understanding and acceptance of FEL. Those interviewed had significant experience, averaging more than 25 years in oil and gas, and more than 20 years’ experience on opportunities and projects. Results suggest that, while FEL is highly regarded and the concept is well understood, it is not always applied appropriately. It is used as a final hurdle—checking the level of FEL just prior to the FID—rather than as a guide from the early stages to determine what work needs to be focused on to achieve a good FEL score. Furthermore, lower FEL benchmark scores are often overridden by expert judgment, justified by a project’s unique characteristics, allowing it to proceed. This approach, focusing on the specific attributes of a project and ignoring general effects or predictive models such as FEL benchmarking, is referred to as taking an inside view and is known to produce inferior results, such as cost and time overruns. The authors argue that a stricter application of FEL and benchmarking predictions, integrating it from the early stages of projects and allowing overrides only in truly exceptional cases, will produce superior outcomes.