Quantifying Unknown Unknowns in an Oil and Gas Capital Project

Abstract

Projects continue to fail at a high rate despite the well-known risk benchmarks published decades ago. Risk assessment and contingency planning are needed in oil and gas (O&G) capital projects because of many ‘unknown unknowns.’ Uncertainty must be estimated for the project schedule as well as for investment costs. Quantitative estimates and diagramming tools can assist in understanding and communicating project risk levels. This paper outlines and applies a method for quantifying unknown unknowns in the O&G industry based on a case study. Four dimensions of unknown unknowns are discussed: novelty of a project, phase of project development, type of industry, and bias. Uncertainty is classified as unknown unknowns, bias, known unknowns, and corporate risks. Practical recommendations are made to quantify uncertainty using probabilistic risk models, and then to integrate these estimates into the budget and schedule.