Putting a TAB on Cost

Dr M R Srinivasan
Professor, Department of Petroleum Engineering & Geosciences University of Petroleum and Energy Studies
The costs in developing an oil field vary from project to project depending upon its nature of reservoir fluids and environment, this paper discusses some of the cost reduction and cost controlling strategies on developing gas field….

Developing a hydrocarbon field needs mainly four types of costs:
1. Exploration Costs: The cost involved for seismic, geophysical surveys, and geological interpretation, exploration, drilling costs, etc.
2. Investment Costs: This cost consists of delineation and appraised costs necessary to gain knowledge of reservoir.
3. Development Costs: This cost involved of drilling of producer, injector wells, construction of surface installation collection network, separator, treatment, storage, etc.
4. Operating Costs: The cost is mainly happened during the operation of the facilities etc which produces and treats hydrocarbon field .

The weightage of these costs may differ from project to project depending upon the nature of reservoir fluids, environment etc. Therefore, the cost reduction/cost control strategies may also differ accordingly.

Operating costs is the cost which is spent during the operation of facilities to produce and treat hydrocarbon fields. The paper elaborates the cost control strategies of operating costs.

Generally it is termed as Opex, related to operation of any plant/units etc .
  • Two thirds of Opex - Consisting and major costs
  • General support by the Company - 20% of total.
  • Well surface Ops. - 15% each
  • Maintenance & Logic - 15% each
  • Personnel Costs - Larger % of total; Balance include Contracts Purchase & services.
  • Remaining one third of expenditure like Inspection, Security, Work overs and new works. Accounts for 15-8 percent of total Costs.
As a matter of Principle, tight control over operating costs to have a rigorous initiatives budding from conceptual studies i.e. development architecture & operating philosophy are selected. Below are the steps:
  • A specific emphasis is to be given on operating philosophy since it has a direct impact on Personnel costs to optimise the work force. When units are being conceived.
  • To control Opex during the operations, they are categorised into main, secondary, equipment, components etc.
  • A system of recording expenditure with automated procedures is to be in place.
  • Application of 'Value engineering' principles in some of the areas in Opex do results in considerable savings.
  • Personnel Costs: Simplify Org. struc ture, Mechanise, Automate or subcontract.
  • Chemicals consumption : Quality, charge supplier process.
  • Use of Spares : Analysing parameters, methodological analysis.
  • Storage Costs: Purchase and stocking policy, standardisation.
VALUE ENGINEERING APPLICATION In one of the Gas Processing Plants, the moisture adsorbant chemical Molecular sieve (Mol.seive) was being used. This was employed to adsorb the moisture content in (Hydrocarbon ) H.C. gas before it was sent to the cryogenic unit for liquefaction and fractionating Products.

These Molecular sieves are used in two towers, which contain about 20 tonnes in each of these towers. They are required to be changed every two years.

The Plant was shut down for about 15 days for replacement of mol.sieves. It costs not only the cost of mol. Sieve of 1.0 Lakhs per tonne, but also indirect loss of revenue due to shut down for 15 days and Mobilising the equibments for this job of replacement. Otherwise in the normal plant life, a planned shutdown of the entire Processing unit used to be taken up not only for replacing the Mol. sieve but also to overhaul of all the machinery and Pr vessels.

A concept was initiated as why not to club the two yearly shut down for Mol. Sieve replacement with the four year scheduled/planned shut down of the plant. A suggestion for installing one more dryer with Mol.seive was conceptualised which prolonged the failure/replacement of the Mol.sieve and hence the replacement was done along with the total plant turn around shut down every four years instead of every two years saving the cost of Mol. sieve, direct loss of revenue & additional cost of executing the replacement of Mol.sieve everytwo years.

  • Similarly the review of technical costs and adopting the latest technology enhance cost reduction to quote few examples use of – and interpretation - to reduce the no. of exploration wells cost for estimation of reserves and optimal positioning of wells to lines the need of further deli.
  • In drilling instead of si well drilled from a well site, 10 to 12 wells from a 'Well Pad' is to be done to reduce the land acquisition cost, Rig cost, etc.
  • Use of digital Process Control system, Higher performance communication network, Light weight turbine for Power generation, variable speed electronic drive and soft staters etc for electrical equipments.
Three areas of concerns dominate the cost control in drilling, viz:
  1. Sensitive issue of maintain weight of Drilling Fluid or mud.
  2. Low temperature creating problems of Rheology of mud.
  3. Presence of required drilling riser heavy and in off shore, adopting the latest technology, like casing while drilling, Drilling with auto riser and under balanced drilling etc.
These are able to reduce the cost of drilling until technology line laser drilling, slimhole drilling Air/foam drilling: revolutionise drilling cost reduction.
  • Capital cost control strategy:- Cost reduction during screening studies & conceptual Preliminary dising has to be order of the day.
  • Apart from this is to simplify and standardise the equipments, their layout, which can bring in 25 per cent for construction and supervision and 40 percent for structures and pipelines.
  • Another innovative way is to utilise the human capital to be synergised with the contract/subcontracting system while awarding contracts for the execution of jobs. Making them as partner instead of a contractor /sub contractor. This is on the increase with projects getting more into complicity cost control strategy for operating costs.
  • Design stage:- As indicated earlier use latest techniques of installation & erection management.
  • A simplified control system with requisite instrumentation.
  • Minimising the no of redundant. Equipment as standby or Back up. The Robust maintenance Practices, availability of equipments and an acceptable rise level.
  • Equipment selection with emphasis on reliability and maintainability.
  • Operating Stage:- Outsource total/part of operating management functions optimized maintenance and Major maintenance with respect to the residual life of project
  • Renegotiating contracts with respects to its competitors, skills required etc
  • Cost control strategy by inhibiting risk awareness.
  • Both increase/ maintain production and controlling /reducing costs.
  • Innovating the processes led to shedding of conservation in H.C. industry. This led to even, a creation of new and additional reserves. But innovation involves risk less/more both in terms of financial and creditability.
  • A glaring example which can be given is the runway success of an multinational E & P company in Rajasthan in funding huge reserve of H.C. While it was a 'mirage' for the Indian E & P companies.
Earlier the development opportunities were technology limited and hence risk taking was fairly low. The present times technological risk taking has become a consequence of commercial decisions taken on the basis of different consideration.

An overview of the cost control strategy one among the four costs of the field development can yield such results, it is obvious that the Cost Control strategy of the other three costs will also no doubt yields Bumper benefits which has made in the list 10-15 years the entry of both Indian & Multinational and Non-core companies taking a bet on the H.C. venture.