Academic journal article The South East Asian Journal of Management

Conflict Approaches of Effective Project Manager in the Upstream Sector of Indonesian Oil & Gas Industry

Academic journal article The South East Asian Journal of Management

Conflict Approaches of Effective Project Manager in the Upstream Sector of Indonesian Oil & Gas Industry

Article excerpt

The Oil and Gas industry is experiencing surge of demand. Limited resources, increasing global demand, strained infrastructures and other factors signify the needs to increase global production. Oil and Gas producers in their pursuit of increasing the production has been spending huge amount of capital expenditure. The International Energy Agency estimates that meeting the needs of global energy would require investing more than $17 trillion by 2030 (Van der Veer, 2006).

Oil and Gas producers implement project approach in exploring and developing their oil and gas reserves globally including in Indonesia. Typically they engage Engineering, Procurement and Construction contractors to develop the required infrastructures and production facilities. Such facilities can either be located onshore or offshore.

Development projects in Indonesia typically are covered by a contract executed by both parties i.e. Oil and Gas company and contractor. Such binding contract includes liquidated damage, maintaining cost objectives and facilities performance guarantees' provisions and some other contractual liabilities. Liquidated damage provision typically imposing a requirement such that contractor in undertaking the project, given the technical and functional specifications, can complete the project at a certain date. This date is usually related to the Oil and Gas company's delivery commitment to their customers. In the case that contractor could not complete the project on time; financial penalty would be imposed to the contractor.

Facilities performance guarantees provisions are usually related to the intended throughput of the production facilities and its life-time. If during the certain period of time after project completion and facilities being handed over to the Oil and Gas company, such facilities' performances could not be met, another liabilities which might also include financial penalty have to be fulfilled or paid by the contractor. Failures to meet the completion dates, cost objectives and facilities performance guarantees are sometimes highly publicized and can negatively impact the credibility of the contractor as to its ability and capacity to fulfill its commitments to the market.

The project environment in the upstream sector of the Oil and Gas industry including in Indonesia also share the same characteristics and pressures compared to other project environment in different sector of the industry. However it is noted that on top of these common characteristics and pressures, contract liabilities put the contractor into a more complex and riskier situation relatively to the other sectors. Notwithstanding the amount of capital spending that Oil and Gas companies has to invest in developing their production facilities which typically ranging from hundreds of millions up to billions of dollars, so that the amount of the financial risks transferred to the contractor are considerably huge. Huge enough so that it can drag the contractor into a bankruptcy condition, if the projects are not well managed.

It is therefore apparent that project manager has a very complex and delicate tasks to perform. Project manager has to manage all project stakeholders' expectations including client, higher management, suppliers, subcontractors and also project team member including conflicts among them and at the same time performing regular duties such as planning, executing, monitoring and controlling project to achieve project goals and objectives which are traditionally viewed as being on time, within budget and meeting client's technical and functional specifications.

Furthermore, Turner and Muller (2003) also stated that there were three project constraints (scope, time, and cost or budget) which could create pressures to the project manager and the undertaking organization. These pressures existed because of the facts that, firstly, projects were subjected to uncertainty since no one could provide a guarantee that plans would deliver the required project outcomes or desired beneficial changes. …

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