It's not often a conference presentation gets an audible gasp from a battle-hardened audience, but that's what happened during a talk that highlighted a dark truth about the E&P business.

The subject of cost overruns on major projects is a sensitive one and not normally a favorite conversation topic in the upstream business. So it was laudable of Chris Bird, technical director at Centrica Energy, to highlight at the Subsea 2012 event in Aberdeen how badly the sector is doing in some cases. Actually, in rather a lot of cases.

The numbers speak for themselves, and at first, it sounds good. In 2012, oil and gas capital expenditure is estimated to be between US $500 billion and $600 billion. There has been a fourfold increase in capex in the last 10 years alone. This year, compared to 2011, national oil companies, which make up 50% of market spend, are forecast to boost capex 15%. Independent oil companies, which make up 15% of market spend, are expected to increase capex 21% year-on-year. Integrated oil companies, with 35% of market spend, are expected to raise capex 8%. So it should be of extreme concern that 28% of all last year's large projects ran more than 50% over budget, according to Bird. It's been a worsening trend over the last 15 years – in 1997, the percentage of large projects going more than 50% over budget was 10%. In 2005, it had risen to 15%, and last year, it was 28%. By 2015, it is predicted to be even worse, he said. Project size plays a part as well. The figure for $5 billion-plus "world class" projects going over the 50% mark is around 35%, while for those under $5 billion the figure is around 25%. Bird also highlighted that more than 70% of projects fail to meet customers' expectations. How can an industry that prides itself on its expertise and project management skills be so wide of the mark? The key causes, according to Bird, are:

People & Organization. The difficulty of matching the right skills with the right project challenges and geography;

Technical Challenges. Operators tackling technology challenges they are not equipped for; and

Governance. Top-down targets affecting project decisions' quality and accountabilities and objectives not well-aligned across project phases. He also mentioned the challenging global business environment, the growing complexity of projects, people more than access to capital becoming the bottleneck , and a supply chain that is stretched in many areas.

There's not enough room to go into the solutions he outlined as Centrica's short-term priorities for delivering world-class capital project performance. In a nutshell, however, it came down to this: The industry needs to take another look at how it delivers capital projects in the wider sense, considering how it manages the business as well as the project; the biggest issue is access to the right level of resources with the right competency, capability, and capacity to deliver effectively. The industry also needs to look at potential future trends and ensure it has the best strategy for the supply chain from a contractor management and relationship management perspective. And it needs to examine how it works together harnessing the power of teams to deliver high performance in the development phase.

Bird added that the industry needs "relentless focus" at the development phase pre-final investment decision.

For the E&P industry to do anything other than try to turn around this apparently spendthrift behavior would surely be almost criminal.

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