Financial Times: Shell's Bonga starts production: “Royal Dutch Shell yesterday announced the start of oil production from its Bonga field in offshore Nigeria, two years behind schedule and about $1bn (£581m) over budget.”: “…the project's troubled history has harmed the company's reputation when it comes to executing large and technically-challenging projects. Costs at Shell's flagship Sakhalin-2 project in Russia have already doubled to $20bn and the company has also faced rising costs at its oil sands project in Canada.”: Tuesday 29 November 2005
By Thomas Catan
Published: November 29 2005
Royal Dutch Shell yesterday announced the start of oil production from its Bonga field in offshore Nigeria, two years behind schedule and about $1bn (£581m) over budget.
The pioneering deepwater project was due to cost $2.7bn. Repeated delays and the rising cost of materials pushed the final price tag to at least $3.6bn.
Oil flow will rise to 200,000 barrels a day by the end of 2006, said Malcolm Brinded, the head of Shell's exploration and production unit, at a time when oil prices are at historic highs.
"The fact that they have got it up-and-running is clearly good news," said Robert Plummer, analyst at Wood Mackenzie. The Aberdeen-based consultants estimate that Bonga will be responsible for about 3 per cent of Shell's oil production and view Nigeria as one of the most important countries to the company.
But the project's troubled history has harmed the company's reputation when it comes to executing large and technically-challenging projects. Costs at Shell's flagship Sakhalin-2 project in Russia have already doubled to $20bn and the company has also faced rising costs at its oil sands project in Canada.
Mr Brinded said Shell had been too optimistic about the timetable and cost of the Nigerian project when it gave it the green light in December 1999.
"We set too tough targets when we set out on the project," Mr Brinded said. "We were disappointed at the delays. We recognise we took on more work than we anticipated."
Linda Cook, Shell's head of gas and power, recently admitted the same was true of Sakhalin-2.
Jeroen van der Veer, Shell's chief executive, has said the company was influenced in the late 1990s by the prevalent ideology of "stretch targets", under which employees were encouraged to pitch ambitious projects.
He says Shell's aim is to produce "realistic targets" and it has established a "project management academy" to improve the execution of large projects
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