Pro-Cyclical Petroleum Investments and Cost Overruns in Norway

29 Pages Posted: 15 Sep 2016

See all articles by Roy Endre Dahl

Roy Endre Dahl

University of Stavanger

Sindre Lorentzen

University of Stavanger

Atle Oglend

University of Stavanger

Petter Osmundsen

University of Stavanger; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: September 14, 2016

Abstract

Development projects in the oil industry often have cost overruns. Through analysis of data from Norwegian development projects in the petroleum industry, this paper investigates the common effect of business cycle developments on cost overruns. Lack of capacity and expertise in a tight supplier market yield cost inflation and difficulties in managing projects. Unlike previous analyses of cost overruns, we analyse projects over a long time period to capture the cyclical effects. We document a statistically significant positive relationship between oil price developments and cost overruns, with shocks or surprises to the oil price during the project implementation having a larger impact on cost overruns than the oil price level itself. Cost overrun ultimately leads to reduced competitiveness for the industry, and we discuss consequences and policy implications for business and society of these cost overruns.

Keywords: Cost Overruns, Petroleum Projects, Business Cycle, Oil Price

JEL Classification: D22, D24, G31

Suggested Citation

Dahl, Roy Endre and Lorentzen, Sindre and Oglend, Atle and Osmundsen, Petter, Pro-Cyclical Petroleum Investments and Cost Overruns in Norway (September 14, 2016). USAEE Working Paper No. 16-276, Available at SSRN: https://ssrn.com/abstract=2839011 or http://dx.doi.org/10.2139/ssrn.2839011

Roy Endre Dahl

University of Stavanger ( email )

PB 8002
Stavanger, 4036
Norway

Sindre Lorentzen

University of Stavanger ( email )

PB 8002
Stavanger, 4036
Norway

Atle Oglend

University of Stavanger ( email )

PB 8002
Stavanger, 4036
Norway

Petter Osmundsen (Contact Author)

University of Stavanger ( email )

4036 Stavanger
Norway

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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