Search

This report examines offshore wind investment by oil companies by means of a transparent and pedagogic project economics analysis. We discuss financing and economic return. Offshore windfarms are organised as special purpose vehicle (SPV) companies. We analyse the economic interactions between the SPVs and the oil companies, and address financing and accounting issues. Finally, we present potential challenges to the petroleum resource authorities from this change in the European majors’ investment strategy. Unlike windfarms onshore, offshore windfarms did not see cost reductions for many years. The wind turbine generators moved farther ashore and on deeper water, and the life cycle cost was actually increasing. Apparently, we now see a dramatic change. In aggressive bidding for Contracts for Difference in the UK, we have seen the strike price fall from around GBP 150/MWh in 2015 to around GBP 40/MWh in the auction rounds in 2019 (in 2012 terms). A question is how this will impact profitability of new development projects. Does the reduction in the strike price reflect a reduction in project cost or a reduction in project profitability, or maybe both? We examine this with a transparent project economics analysis of the bottom-fixed Dogger Bank project, owned by Equinor, SSE Renewables and ENI. It is the largest offshore windfarm project in the world and is set out to generate 5% of UK electricity production.

We analyse business cycles of oil and gas investment on the Norwegian continental shelf. Investment declined steeply from 2014 until 2017, following business cycle-induced cost increase and a subsequent dramatic drop in the oil price. Two competing hypotheses emerged in the literature, as to whether the downturn is transitory and part of the cyclical nature of the business, or if it is a permanent shock caused by the emergence of climate risk. We apply various techniques to extract the cyclical component of petroleum investment. The results show that the recent recession was not more severe in terms of duration compared to previous crises, and that it was transitory. However, the change in cyclical component from peak to trough was more extreme than anything observed previously. After an upturn of only two years and while the capital-intensive parts of the supplier industry were not yet recovered, in March 2020 the pandemic COVID-19 and oil price war caused another dramatic oil price reduction. We discuss the counter-cyclical tax policy passed by the Norwegian Parliament in light of the oil companies’ practice of capital rationing and an explicit aim of ensuring the survival of the supplier industry.

Development projects in the oil industry often have cost overruns. Through analysis of data from Norwegian development projects in the petroleum industry, this paper investigates the common effect of business cycle developments on cost overruns. Lack of capacity and expertise in a tight supplier market yield cost inflation and difficulties in managing projects. Unlike previous analyses of cost overruns, we analyse projects over a long time period to capture the cyclical effects. We document a statistically significant positive relationship between oil price developments and cost overruns, with shocks or surprises to the oil price during the project implementation having a larger impact on cost overruns than the oil price level itself. Cost overrun ultimately leads to reduced competitiveness for the industry, and we discuss consequences and policy implications for business and society of these cost overruns.

We investigate the potential for statistical forecasting of aggregate oil and gas investment on the Norwegian Continental Shelf (NCS). A unique and detailed dataset containing data from 109 different fields on the NCS between 1970 and 2015 was employed. A set of 1080 autoregressive distributed lag models are evaluated pseudo out-of-sample and tested for data mining by utilizing a Diebold-Mariano hypothesis test and the model confidence set procedure by Hansen and Lunde (2011). The main results are as follows. First, we find that it is indeed possible but challenging to outperform the parsimonious random walk benchmark in an out-of-sample environment. Second, lags of investment growth, crude oil price growth and realized volatility is found to be adequate predictors for the investment growth. Finally, there is a clear benefit from re-estimating the models coefficient at every step.

The oil and gas sector plays a crucial role in the Norwegian economy. It accounts for a very large proportion of gross domestic product, government revenues, investment and exports. A sharp fall in oil prices has had a significant impact on the economy and focused great attention on the cost side of the sector. Enhancing cost efficiency and curbing cost overruns now top the agenda. It is not difficult to find examples of projects suffering extensive cost overruns. What factors underlie these overruns? Media coverage might easily give the impression that Norway's oil and gas sector is suffering from a lack of ability and competence to plan and execute projects to budget. Is this reputation deserved? Does the oil sector perform more poorly in Norway than in other producer nations? Can we see learning effects? How do the Norwegian and the international oil industry compare with other industries with respect to cost performance?

We examine drivers of cost overruns in Norwegian development projects in the oil and gas sector. The multivariate longitudinal econometric analysis employs a unique and detailed dataset consisting of 80 different projects between 2000 and 2015. Among the significant results, we find that the unexpected change in economic activity has a positive effect on the overruns; there is a considerable positive momentum in the transitional cost overruns; more experienced operators tend to incur less overruns; finally, that the size of the investment of the projects has a positive impact on the overruns. Further, we find evidence that the current economic activity matters to an extent, but it is the unexpected change in activity that is the pivotal factor.

The rapid growth in consumption and use of electronics has resulted in E-waste becoming one of the most accelerated global waste streams. Despite high rates of electrical and electronic (EE) recycling, Norway is one of the countries with the highest generation of E-waste per capita. Inspired by circular economy principles and previous research on the E-waste stream, this thesis explores the potential for reuse in solving the waste problem in the Norwegian EE industry. As reuse of EE products remains low in Norway, this thesis examines the current state of the industry and identifies barriers to reuse adoption. This is supported by insights from four semi-structured expert interviews and secondary data. The findings suggest that the most prevalent barriers are the linear design of products, economic unsustainability, consumer scepticism, lack of clear regulations and product value loss due to irresponsible treatment. Recommendations are presented as guidance on how to overcome these barriers and accelerate the reuse rate in Norway. This has important implications for policymakers and industry stakeholders that wish to transform their industry and business models. The barriers apply across stakeholder groups and require an industry-wide understanding of how to establish effective collaboration and ultimately increase the reuse of EE products.

Motivasjon: Lean Startup, Design Thinking og Scrum er tre metoder med økt bruk i programvareutviklingsprosjekter. Selv om de er velkjente metoder, er det risiko for å støte på problemer når de implementeres. For å lære mer om ulike typer problemer og hvordan de kan løses, gjennomførte vi en casestudie som undersøkte problemstillinger knyttet til implementeringen. Metode: Vår case-organisasjon er et oppstartsselskap som utvikler programvare. De kvalitative dataene om organisasjonen ble samlet inn gjennom åtte semistrukturerte intervjuer med representanter fra alle avdelingene i selskapet. Analysen av de innsamlede dataene er gjort i henhold til den fem-fasede syklusen bekrevet i Yin (2011). Funn: Tidspress var forårsaket av dårlige prosjektdefinisjoner, urealistiske estimeringer og utilstrekkelig kunnskap om metodikkene. Omfanget av det Minste Brukbare Produkt (MVP) var for stort, så viktige konsepter i Lean Startup ble ikke utført. Ved å bruke "the Double Diamond" ble "Design Thinking" utført hovedsakelig med fokus på å løse problemer i stedet for å utforske problemer. Senere ble "the Double Diamond" nedprioritet på grunn av tidspress. I tillegg resulterte Scrums manglende veiledning om håndtering av "backloggen", i dette tilfellet, til å ligne på en fossefallsmetode med Scrum-seremonier. Konklusjon: Med en bedre definisjon av MVP, kan Lean Startup sin Build-Measure-Learn tilbakemeldings-loop ha vært oppnåelig. Selskapets struktur forhindret implementering av noen Lean Startup-prinsipper og strukturelle attributter, noe som resulterte i mangel på oppstartsmentalitet. "The Double Diamond" kunne ha styrket visjonen og potensielt forhindret visjonens avsporing ved å fokusere mer på å utforske problemet i stedet for løsningen. Testing og verifisering av designet virker sårbart for neglisjering under tidspress. Problemene med Scrum backlog management, estimering og tidspress førte til problemer med å fullføre "sprinter" og økt press på teamet. Motivation: Lean Startup, Design Thinking, and Scrum are three methodologies with increased use in software development projects. Although they are well-known methodologies, there are risks of encountering problems during implementation. To learn more about the type of problems and how they may be solved, we conducted a case study examining issues related to the implementation. Method: Our case organization is a software startup. The qualitative data about the organization were collected through eight semi-structured interviews with people representing all the company departments. The analysis of the collected data has been done according to the five-phased cycle described in Yin (2011). Findings: Time pressure was caused by poor project definitions, unrealistic time estimates, and insufficient knowledge about the methodologies. The scope of the Minimum Viable Product (MVP) was too large, so important concepts in Lean Startup were not executed. Using the double diamond model approach, design thinking was performed mainly focusing on solving problems instead of exploring problems. Later on, the entire double diamond model lost priority due to time pressure. In addition, Scrums' lack of guidance on backlog management resulted, in this case, looking similar to a waterfall method with Scrum ceremonies. Conclusion: With a better definition of the MVP, the Lean Startup Build-Measure-Learn feedback loop may have been achievable. The company's structure prevented the implementation of some Lean Startup principles and structural attributes, which resulted in a lack of startup mentality. The double diamond model could have strengthened the vision and potentially prevented the vision's derailment by focusing more on exploring the problem instead of the solution. Testing and verifying the design seems vulnerable to neglection under time pressure. The issues with Scrum backlog management, estimation, and time pressure led to problems finishing sprints and added pressure on the team.

Risk within digitalization is an increasingly relevant subject and there is no established framework on identifying risks in the development of new digital tools and processes. To this end, this thesis seeks to establish a recently developed method of utilizing Bayesian Networks to visualize risk within projects. In cooperation with Aker Solutions, the currently developing NOA Digital Project is analyzed and assessed for its risks and opportunities. By establishing a risk picture specific to the project, a generalized network of risks within digitalization projects is developed. An emphasis is put on examining how different aspects of project management and company culture affected the project’s overall risk picture, helping the identification of risk reducing measures. The generalized network and the proposed risk reducing measures of this thesis can serve as a framework for various projects across different industries and its use is illustrated by the case study of the NOA Digital Project. Risk within digitalization is an increasingly relevant subject and there is no established framework on identifying risks in the development of new digital tools and processes. To this end, this thesis seeks to establish a recently developed method of utilizing Bayesian Networks to visualize risk within projects. In cooperation with Aker Solutions, the currently developing NOA Digital Project is analyzed and assessed for its risks and opportunities. By establishing a risk picture specific to the project, a generalized network of risks within digitalization projects is developed. An emphasis is put on examining how different aspects of project management and company culture affected the project’s overall risk picture, helping the identification of risk reducing measures. The generalized network and the proposed risk reducing measures of this thesis can serve as a framework for various projects across different industries and its use is illustrated by the case study of the NOA Digital Project.

Samspillsprosjekter er utberedt, utviklet og standardisert i andre land. I Norge derimot er fenomenet forholdsvis nytt. Mangelen på en omforent definisjon og en Norsk Standard, har ført til forvirring knyttet til hva samspill innebærer. Som følge av dette har slike prosjekter blitt preget av mangel på åpenhet, kostnadsoverskridelser og lav tillit mellom aktørene. Kostnadsoverskridelse trekkes frem som et av mange vedvarende problemer i norsk byggeindustri. Litteraturen hevder at kostnadsoverskridelse kan reduseres dersom samarbeidet mellom partene forbedres. Dette ga motivasjon for å utarbeide følgende problemstilling: Hva driver kostnadsoverskridelser i prosjekter hvor entreprenører samarbeider, og hvilke tiltak kan redusere slike overskridelser? Oppgavens bidrag til litteraturen er å finne tiltak som kan hindre, om ikke eliminere, slike overskridelser, hvor det endelige målet er å skape bedre samspillsprosjekter. For å kunne undersøke dette, har oppgaven som mål å besvare på følgende spørsmål: 1. Hvilke faktorer forårsaker kostnadsoverskridelser i bygg- og anleggsprosjekter? 2. Hvilke betydning har kontraktstrategien, kommunikasjon og kostnadsstyringen for kostnadsoverskridelsene i prosjektene? 3. Hva burde inkluderes slik at entreprenørene i samspillsgruppen kan redusere kostnadsoverskridelsene til fremtidige prosjekter? For å besvare forskningsspørsmålene har det blitt gjennomført litteraturstudie, dokumentstudiet, og to semistrukturerte intervjuer. Det er utført to casestudier, hvor de kvalitative intervjuene har bidratt til den største delen av empirien til oppgaven. Litteraturstudie ble gjennomført for å undersøke eksisterende teori som omhandler samspill og kostnadsoverskridelser, hvor formålene var å skape et grunnlag for oppgaven, muliggjøre en sammenligning mellom funn fra casestudiene og eksisterende teori, og for å tilegne seg mer kunnskap rundt forskningsområdet. Hensikten med oppgaven er å undersøke hvordan overskridelser oppstår, og hvordan man kan redusere det. Som følge av dette kan man få til et bedre samspill blant entreprenørene. Resultatene fra intervjuene og litteraturstudiene viser at tekniske forhold slik som konflikt ved tverrfaglige løsninger, svakheter i kontraktsgrunnlaget, omfangsendringer, usikkerhet og utilstrekkelig estimeringsmetodikk var betydelige årsaker for overskridelsene. Kognitive forhold slik som ubevist overoptimisme og insentivene til å utføre prosjekter, hvor man bevisst vet at det kan oppstå kostnader som avviker fra estimeringen, var også med på å forårsake overskridelser. Videre var det tydelig at det var et «informasjonsgap» mellom entreprenørene, ved at data og informasjon ikke ble formidlet godt nok eller at motparten ikke fikk med seg informasjonen. Mangelen på klarhet forårsaket misforståelser blant samspillsgruppen. Av den grunn var ineffektiv kommunikasjon og utydelig informasjonsformidling med på å forårsake kostnadsoverskridelser. Casestudiene tilfredsstiller flere samspillselementer som er nødvendig for at et samspillsprosjekt skal kunne fungere, slik som workshop, teambuilding, samlokalisering osv. Likevel opplever prosjektene fortsatt overskridelser. For at man skal oppnå de ulike fordelene som litteraturen viser til, burde komponenter slik som målpris, åpen bok og insentiver basert på partnergruppens resultat innføres. Uten disse vil det oppstå mangel på åpenhet i prosjektet, noe som er et av de viktigste forutsetningene for å få til et godt samspill. Åpenhet kan videre være med på å styrke tilliten blant samspillsgruppen. Uten åpenhet og tillit, er det vanskeligere å løse uenigheter og konflikter som gir overskridelser. Det er også mulig å tro at komponentene ville vært med på å øke samarbeidsforholdet blant gruppen, ved at man blir forpliktet til å kommunisere mer sammen. Slik kan man sikre at «informasjonsgapet» fylles blant entreprenørene. Videre kan implementeringen av en felles kommunikasjons- og informasjonsdatabase være med på å forebygge problemstillingen. Databasen vil håndtere lagringen og loggføringen av informasjonen, slik at informasjonen alltid er tilgjengelig blant gruppen. Ved å øke graden av muntlig og skriftlig kommunikasjon, kan man forebygge utydelig informasjon, avklare misforståelser, og sikre seg bedre informasjonsflyt. Selv om det har blitt analysert casestudier i oppgaven, og presentert anbefalinger til fremtidige prosjekter, er det likevel noen svakheter med oppgavens forskning. Det er kun analysert et begrenset utvalg av prosjekter. Av den grunn er det ikke gitt at funnene i oppgaven kan være representative for en hel prosjektportefølje. Til tross for dette har informantene bestått av nøkkelpersoner, noe som har gjort det mulig å fremskaffe data av høy kvalitet og validitet. Dette er likevel en svakhet, ettersom det ikke har blitt benyttet triangulering av perspektiver. Dette gjør at man får ensidig rapportering, noe som kan gi data som kan lede til bias. Til syvende og sist har oppgaven samlet inn verdifull og relevant data, noe som kan benyttes videre i erfaringsoverføringen. Project partnering is more common, developed and standardized in other countries around the world. On the other hand, in Norway, the phenomenon is relatively new. The lack of an agreed definition and a Norwegian standardized method has led to confusion related to what partnering involves. As a result, such projects have been characterized by a lack of transparency, cost overruns and low trust between the participants. Exceeding costs are highlighted as one of many problems in the Norwegian construction industry. The literature claims that cost overruns can be reduced if cooperation between the parties is improved. This motivated the development of the following topic: What causes cost overruns in projects where contractors collaborate, and what can reduce such overruns? The novelty of this thesis is to find measures that can prevent, if not eliminate, such overruns, where the goal is to create better partnering projects. To investigate this, the thesis aims to answer the following questions: 1. What are the factors that cause cost overruns in construction projects? 2. What significance does the contract strategy, communication and cost management have for the cost overruns in the projects? 3. What measures should be included so that the partners in the organization can reduce the cost overruns for future projects? To answer the research questions, a literature study, document study, and two semi-structured interviews have been conducted. The qualitative interviews have contributed to the largest part of the empirical data for the thesis. The literature study was conducted to investigate the theory related to partnering and cost overruns, where it was desirable to create a basis for the thesis, to enable the comparison between findings from the case studies and theory, and to acquire more knowledge about the research field. The purpose of the thesis is to investigate how cost overrun occurs and how to reduce these issues. As a result of this, one can get better cooperation among the contractors. The results from the interviews and literature studies show that technical circumstances such as conflict over interdisciplinary solutions, deficiencies in the contract basis, scope changes, uncertainty and inadequate estimation methodology were significant reasons for cost overruns. Cognitive factors such as unconscious over-optimism and the incentives to carry out projects, where it was deliberately known that costs could deviate from the estimate, are also contributed to causing overruns. Furthermore, it was clear that there was an "information gap" between the contractors, as the data and the information were not communicated well enough, or that the other party did not receive the information. The lack of clarity caused misunderstandings among the partnering organization. For this reason, inefficient communication and unclear dissemination of information contributed to cost overruns. The case studies satisfy several partnering elements that are necessary for a partnering project to work, such as workshops, team building, co-location, etc. Nevertheless, the projects still experienced overruns. To achieve the various benefits that the literature refers to, components such as target price, open book and incentives based on the organization result, should be introduced. Without these components, there will be a lack of transparency in the project, which is essential for good partnering. Transparency will also help to strengthen trust in the organization. Without transparency and trust, resolving disagreements and conflicts could be more challenging, which may result in more cost overruns. It is also possible to believe that these components could help to develop the relationship in the organization, as the group is obliged to communicate more together. This could ensure that the "information gap" is prevented among the contractors. Furthermore, the implementation of a common communication and information database would also be able to prevent the issue. The database would handle the storage and logging of the information so that it is consistently would be available for the group. By increasing the degree of oral and written communication, one can prevent unclear information, clarify misunderstandings, and ensure a better flow of information. Even though the thesis has analyzed case studies, and presented recommendations for future projects, there are still some weaknesses with the research. This thesis only analyzed a limited selection of projects. For this reason, it is not a given that the findings in the thesis can be representative of an entire project portfolio. Despite this, the informants have consisted of key personnel, which has made it possible to obtain data of high quality and validity. However, this is also a weakness, as triangulation of perspectives has not been used. This means that one retrieves one-sided reporting, which can give data that can lead to bias. Ultimately, the thesis has collected valuable and relevant data, which can be used for further studies.

Master's thesis in Industrial Economics This thesis focuses on the causes leading to cost overruns in energy projects. The motivation to write about this subject arose from discovering the fact that most companies avoid releasing accurate information surrounding costs of their projects, and for this reason, few studies have been done on the subject matter. While researching this subject, the author came to the conclusion that the explanation behind the occurrence of cost overruns would be complex, and that a single method of study would not be sufficient to comprehensively answer the research question. Therefore, a mixed-method study was chosen. The result of using a mixed-method study has led to the analysis of quantitative data from 424 projects, which was then mixed with a set of quantitative and qualitative data from a variety of sources, making this a comprehensive study on this topic. The focus of this thesis has been on the accuracy of information available at the time of decision to approve the initiation of a project, i.e. project sanctioning, and should only be interpreted as such. The author has found that bias, deception and lack of understanding of risk and complexity are widespread in the energy industry. The results indicate that projects in the nuclear sector experience cost overruns regardless of their size (indicated by budget and capacity), proposed project time or completion date within its sector. These projects had the highest average and frequency of cost overruns of any sector. Meanwhile, hydro projects represented the highest average cost overruns in total dollars of any sector. Oil and gas projects showed better forecasting performance, but still had arguably high average and frequency of cost overruns. On the other hand, wind and solar projects had high degrees of standardizations with shorter project lead times and were the least risky options of all the sectors.

Master's thesis in industrial economics This thesis aims to test and compare some of the most frequently applied models in the forecasting literature, for their ability to produce accurate ex-post (pseudo) out of-sample forecasts of the crude oil price. These models range vastly in complexity, ranging from the most parsimonious idea of price-today-is-price-tomorrow approach to more sophisticated and stochastic models. All models will be assessed with the commonly used proxy for the oil price, namely the West Texas Intermediate (WTI) benchmark price, sampled in both daily and monthly frequencies. A model’s forecast accuracy will be evaluated employing a set of various loss functions that differ in their way of penalizing the forecast errors. Additionally, the models’ forecasts will be tested for being directionally accurate in predicting the actual price changes. Finally, model selection and estimation will be analysed across different lengths of historical price data, to examine what effect the choice of sample period has on the forecast results. The empirical results of this analysis show that neither the deterministic or stochastic models evaluated are able to forecast the price of crude oil with an adequately desired accuracy. It was also found that forecast results are highly sensitive to the choice of sample period for historical prices used as input for model estimation, and that certain models perform better when only recent market data is used as input.

Master's thesis in Industrial economics The scientific field of risk management (RM) is not older than 30-40 years, but today it is considered as a critical business function. In a society where large amounts of data are being processed at an ever-faster pace, such as in the oil and gas industry, there is a need for a well-functioning RM system. The system should enable companies to identify and manage risks, as well as support the decision in addressing risk when making decisions under uncertainty. The purpose of this master thesis is to study how companies in the oil and gas industry manage risk during the whole project life cycle, using Offshore AS as an example. The thesis will investigate if Offshore AS’s process manuals are adhered to and sufficient, and further look into how the risk is transferred between the departments and different stages of a project. In addition, it will also be considered whether it is possible to optimize the RM in Offshore AS. To answer these questions, a review of the company’s internal documents, qualitative case studies of eight previous projects and six semi-structured interviews with key personnel has been carried out. The document review of the internal process manuals provides an understanding of how Offshore AS manage risk in their organization. The document review is also the basis for the evaluating in the case studies, where previous projects are evaluated against the process manuals. The results from the case studies further provided the foundation for the interview questions, which were intended to verify the findings in the case study. The evaluation of Offshore AS shows that they satisfy the processes to a large extent, and many of the principles for good RM are implemented. At the same time, the processes are not always adhered to, they are not sufficiently described and there exist signs of errors and weaknesses, which convey that the processes are not optimal and needs improvements. The results indicate that the risk transfer between the various departments is somewhat discontinuous. In order to improve the risk transfer between the departments, it is important that the processes that have been set are followed and described in more detail, and that they are prioritized independently of available resources.