W4_Candra Nugraha_Buy or Rent

Opportunity Statements

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.

Root Cause

  • 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.

Develop Alternatives

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. 

Success Metrics

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.

 Success Factor

 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). 


  1. Peters, Max S & Timmerhaus, Klaus D. (1991), Plant Design and Economics for Chemical Engineers 4th Edition, Singapore: McGraw-Hill, Inc.
  2. Sullivan, William G., Wicks, Elin M. & Koelling, C. Patrick (1942), Engineering Economy 15th Edition, Singapore: Prentice Hall, Inc.

About Candra Nugraha

I'am living in jakarta, indonesia
This entry was posted in Candra Nugraha, Week #4. Bookmark the permalink.

1 Response to W4_Candra Nugraha_Buy or Rent

  1. DrPDG says:

    Simply AWESOME, Mas Candra!!! EXACTLY what I am looking for each week. A perfect example…..

    You picked a SINGLE problem, you defined it well, explored the root causes, identified feasible alternatives using the tools/techniques you are learning about and came up with a solution based on FACTS, not on “emotions” or “gut feel”.

    Can’t ask for anything better than this……

    Keep up the good work and looking for you to mentor others on your team.

    Dr. PDG, Jakarta

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