Phased Contract Price Arrangement For Oil And Gas Projects

Abstract

jergeas@ucalgary.caThe high level of technical complexity in mega projects as well as unstable market conditionin the oil and gas industry result in different levels of risk and uncertainty throughout variousphases of the project. Cost reimbursable and lump sum are two commonly used contractualarrangements that shift the project risks to the owner or the contractor respectively. Conven-tional approach to use a single contract type such as cost reimbursable or lump sum for thewhole project life cycle cannot address the dynamic and unpredictable environment of megaprojects in the oil and gas industry. Project cost and performance risks should be addressed byappropriate contract price arrangements during the project life cycle. A dynamic contractualframework should be structured for the major projects to optimize risk taking/sharing philoso-phy between contracting parties. This paper presents an alternative contractual arrangementfor oil and gas projects with respect to the different levels of uncertainty throughout thedevelopment and execution phases of the project. In particular, one of the major challengesof using this contractual framework has been addressed in this paper.