* Most big oil, gas extraction projects bust their budgets
* Scale and complexity of projects outgrowing biggest oilfirms
* Collaboration among oil firms needed, but bureaucracyunwieldy
* Companies abandoning or selling some high-risk, costlyprojects
By Dmitry Zhdannikov
DAVOS, Switzerland, Jan 22 (Reuters) - Giant oil and gasextraction projects will be giving oil industry executivesheadaches to match for the years ahead as delays, cost overrunsand increasing risks call for new strategies to manage them.
The sheer scale and complexity of such projects isthreatening to outgrow the ability of even the largest oilcompanies to manage them.
They have emerged as the central topic for debate as oilexecutives gather on the sidelines of the World Economic Forumthis week in the Swiss alpine resort of Davos.
Almost all the top companies have seen huge delays andbroken budgets at projects ranging from record-breaking Australian liquefied natural gas (LNG) schemes to the enormousand a technically challenging Kazakhstan oilfield in thefreezing Caspian Sea.
The subject has elbowed out last year's hot topic, security,which was forced to the top of the agenda by the attack at a BP and Statoil gas plant in Algeria in January2013.
"What we see are significant delays in the oil and gasindustry as a result of a lack of available skills, bureaucraticbarriers and geopolitical challenges," says Fatih Birol, chiefeconomist at the International Energy Agency.
"We see almost all big projects delayed."
Most discussions are set to be moderated by Paolo Scaroni,the chief of Italy's Eni, a company that for many yearswas lead operator at the Kashagan field in Kazakhstan, theworld's largest discovery in 30 years.
Superlatives come naturally to the Kashagan project,including the most notorious cost overrun in the last decade.Its initial budget of $10 billion has ballooned to estimates offive times that amount and more.
Not too far behind, the Chevron-led Gorgon LNGfacility in Australia is now set to cost $54 billion, up almost$20 billion from initial estimates. Chevron is the world'ssecond biggest investor-controlled oil company, and yet its own$25.5 billion share of that cost will eat up eight months' worthof its total $40 billion a year spending budget.
NEW STRATEGIES
The latest setback to the Kashagan project was late lastyear, when pipeline leaks halted output just weeks afterstart-up.
"Kashagan! I don't want to hear this word any more," onefrustrated oil executive said, shaking his head in disbelief.
The project's participants, which include Exxon Mobil, Royal Dutch Shell and Total - threeof the global top five - could yet face new penalties from theKazakh government, which was hoping to ramp up output this yearand increase budget revenues to meet rising social costs.
"Four years ago we heard threats of project nationalisationbecause of delays. And it cost us hugely," an oil executive saidreferring to an earlier settlement at Kashagan, when Kazakhstantook a large portion of the project under state control.
It remains to be seen how the government might penalise theconsortium for new delays. In the meantime, political risk isnot the only headache.
"The increasing scale, costs and risks of oil and gasprojects have taken complexity to a new level," the materialsprepared for the CEOs' meeting say.
"As companies across the spectrum frequently face costoverruns and delays in delivery, successful execution of megaprojects calls for new strategies to manage capital andoperational costs," it says.
It also adds that "mega complexity" will likely call for newforms of collaboration, although in the case of Kashagan, havingalmost all the biggest majors on board early didn't help. Indeedit has turned the project into a bureaucratic nightmare.
There are financing constraints, too.
All of the top five are promising investors that capitalspending has peaked or is peaking, and are moving to sell assetsand abandon some of the most expensive, high-risk projects totake the heat of the rampant cost inflation that occurred inAustralia in recent years.
Shell's GTL project in the United States is one of thelatest casualties. BP last year scaled back an ambitious andinnovative extension plan for its Mad Dog structure in the Gulfof Mexico.
But company bosses know that while investors look littlemore than a year or two ahead, the industry's survival dependson their ability to invest for production that will not come online for another 10 or 15 years.
"The industry needs to find a solution to get the rightsupply balance," says Birol.
