Stage-Gate Project-Management Process in the Oil and Gas Industry

Abstract

This article, written by Technology Editor Dennis Denney, contains highlights of paper SPE 102926, "The Good, the Bad, and the Ugly of the Stage-Gate Project-Management Process in the Oil and Gas Industry," by G.W. Walkup Jr., SPE, SDG, and J.R. Ligon, SPE, Consultant, prepared for the 2006 SPE Annual Technical Conference and Exhibition, San Antonio, Texas, 24–27 September. Management teams speculate on major capital projects to drive company performance. Capital committed to megaprojects has increased at a compounded average growth rate of more than 12% during the last decade, and this trend is expected to continue over the next decade. To manage the shareholder value that is at risk in these projects, most companies have invested heavily in a formal stage-gate project-management process (PMP). Yet the performance of major projects has not improved appreciably, and significant project failures—both technical and economic—continue to occur. Key organizational and technical shortcomings that diminish project performance are identified, and actions that management can take to gain significant competitive advantage are suggested. Introduction Spending in excess of U.S. $2 billion over a 5-year period for a single project is accepted. Most companies have adopted a stage-gate PMP to manage these projects. While differences exist, there is much similarity among the different PMPs. For this paper, the process and nomenclature shown in Fig. 1 are used. The focus is on the first three phases of the PMP because they are most relevant to petroleum engineers. PMP Overview A PMP should create greater shareholder value from major projects while simultaneously protecting people and the environment. Fig. 2 is a model of how shareholder value is created, beginning with value identification and ending with value delivery. The role of a PMP in this value-creation cycle is to improve value identification through improved decision quality and to improve value delivery through improved project execution. The five-phase stage-gate process in Fig. 1 is the PMP that has evolved from companies' beliefs about shareholder-value creation and management's ability to influence it. Three of the five PMP phases are focused on value identification, and frequently they are referred to collectively as front-end loading (FEL). Each phase has a specific goal and ends with a decision to move the project to the next phase, redo the current or prior phase, or drop the project altogether. The exception is that the final phase, Operations, has no terminal stage-gate decision.