Project Proposal should consist of the feasibility studies which include technical concepts, budgetary and the most important thing is the economic calculation. One of my job functions is to evaluate the options and come up with recommendation which one is the best, BUY or RENT.
This Compressor station will be developed due to pressure declined from reservoir that makes some compressors should be installed to maintain gas sales continuity.
- The subsurface pressure declined is natural since the reserve is limited.
- In order to increase Enhance Ultimate Recovery (EUR) factor the compressor should be installed.
- The Compressor Package shall fulfill the technical requirements as Basis of Design and economically feasible based on the capital investment, operating expense and revenue generated.
Based on the Production Profile, the compressor will deliver 60 mmscfd for 12 years life time. Some alternatives have been developed as per given condition:
The type of compressor whether centrifugal or reciprocating is not described here which a little bit impact on the Total Life Cycle Cost.
Development of the outcomes
The table below is showing +/- for buying or rental:
Minimum Acceptable requirements
The minimum gas deliverability to generate cash flow for the Government and Contractors as a basis of economic calculation is given below:
The criteria of economic selection are:
- The Highest Net Income for Government.
- Pay Out time shall be less than 3 years.
- NPV calculated at 12% Discount.
- The constant figures for production life and total gross revenue for each alternative.
- Cost Depreciation is applied for Double Declining Balance which is 5 years for production facility.
Analyze and compare the alternatives
Based on the alternatives as given, we come up with the preliminary economic calculation based on agreed contract between government and contractor as per below table:
Develop preferred alternative
BUY with scenario 4 x 20 mmscfd, is this worth Doing?
Estimated revenue generated as calculated is US$ 432,525,000. The best Government Take is US$90,994,000 for 12 years operation. The Pay Out Time is not the fastest due to method cost recovery calculation is applied for capital investment.
The following summaries the information considered before it made as Go or No Go Decision:
Const is mitigated under Risk Register.
Monitor and Evaluation
After the Authorization for Expenditure (AFE) is approved, the following Success Planning is monitored and shall be achieved.
Performance Metrics (Lagging Indicators)
- Throughput gas volume
- Operating cost
Process Metrics (Leading Indicators)
- Spills – zero.
- Industrial Accident / LTI – zero.
- Cost performance – +/- 10% of budget.
- Schedule performance – +/- 10% of milestone dates.
The following action items are a must for achieving the Success Metrics above:
- Good team work & coordination – meet on regular basis, good cross functional participation and good team commitment.
- Follow the project management practices.
- Follow HES procedures and approved standards & codes.
- Utilize VIP’s & Best Practices.
- Involve the right resources (e.g., contract development).
- Peters, Max S & Timmerhaus, Klaus D. (1991), Plant Design and Economics for Chemical Engineers 4th Edition, Singapore: McGraw-Hill, Inc.
- Sullivan, William G., Wicks, Elin M. & Koelling, C. Patrick (1942), Engineering Economy 15th Edition, Singapore: Prentice Hall, Inc.