Publications

Oil and Gas Companies consistently strive to maximize production to maintain revenue and to continue to lower operating costs regardless of the actual oil price. Cost estimates play an important part in managing Company expenditures, therefore there must be good accuracy in cost estimates. Company cost estimates in contract sourcing and operating expenditure (OPEX) budgets are described. Three different methods of escalated historical data, market intelligence, and should-cost model are described and their key factors identified. The cost estimates are benchmarked to Industry Practices of Independent Project Analysis (IPA) research results, International Guideline of Association for the Advancement of Cost Engineering (AACE) and the Guild of Project Control (GPC) as well as the Company’s own business performance at bid or tender phases. The cost estimate comparison between Engineering Estimate vs Approved Contract Value in contract sourcing and Detailed vs Non-Detailed Budget Review process in OPEX is graphically presented in timeline history and total estimated cost savings is measured. Company cost accuracy performance in contract sourcing for 2020-Q4 and 2021-Q1 to Q3 was 13.9%, 11.3%, 5.5% and 5.6% respectively with no fail tender performance in the procurement process. The corresponding managed budget was X, 38X, 14X & 72X respectively with total estimated cost saving of 7% for the total managed budget. A cost accuracy of 5-6% is well within Company performance, industry practice, and International Guidelines. Such performance strongly supports Company business performance in the current oil and gas industry business environment. Using a Detailed Budget Review process, more than 90% of the OPEX budget was reviewed, taking into consideration the actual contract status, the nature of the contract and the current contract price for the main budget items. The escalation rates in the Detailed Budget Review for 2021 to 2023 were 0.7%, 1.7%, and 1.0% while for the Non-Detailed Budget Review the escalation rates were 4.5%, 5.0%, and 4.3% respectively. The corresponding managed budget was X, 0.97X, and 0.91X respectively with total estimated cost savings of 3.3% for the total managed budget.