FIELD DEVELOPMENT PLANNING PROCEDURE

ESTIMATING

DOCUMENT NO:

GH-AA-A-112

Document Revision Record

Issue

Date

Description

Prepared

Jan 1997

Issued for IDC

B Beck

Jan 2003

Complete Revision

H. A. MacKinlay

J. T. Wright

Mar 2003

Issued for IDC

H. A. MacKinlay

J. T. Wright

May 2003

Issued incorporating comments

H. A. MacKinlay

J. T. Wright

QA Approval :

J. Braithwaite

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Date :

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Checked

Approved

M. Wood

May 2003

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CONTENTS
FRONT PAGE AND DOCUMENT REVISION RECORD
CONTENTS
1.0

PURPOSE

2.0

SCOPE

3.0

DEFINITIONS

4.0

RESPONSIBILITIES

5.0

4.1

Project Manager

4.2

Lead Discipline Engineer

4.3

Cost Analyst

PROCEDURE
5.1

General

5.2

Work Breakdown Structure

5.3

Estimate Format

5.4

Estimate Methodology

5.5

Estimate Accuracy

5.6

Estimate Contingency

5.7

Level of Cost Estimate

5.8

Retrofit Cost Estimates

5.9

Decommissioning Estimates

5.10

Delta Cost Estimates

5.11

OPEX Costs

5.12

Risk Analysis

6.0

RECORDS

7.0

REFERENCES
7.1

Procedures

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1.0

PURPOSE
This procedure defines the approach, process, format and tools used in the
preparation of cost estimates produced as part of project field development scope
objectives. This procedure includes the preparation of capital cost estimates
(CAPEX), operating cost estimates (OPEX) and associated cost risk analysis.
This procedure primarily describes the process of preparation of an estimated total
installed cost (TIC) for a study based on a new build project scenario. However, the
same approach is also applicable for the preparation of part retrofit estimates, plant
modifications and in addition can be applied to the preparation of delta cost
estimates.
The objective shall be to present an accurate and reliable project cost estimate as
defined in the scope of work for the proposed project. To achieve this objective the
following basic requirements shall be met as part of the study deliverables.

2.0

Definition of the scope, and duty;

Correct level of design, engineering, definition of assumed method of

implementation and physical quantification and specification of all components
of the project; and

Correct application of costs to the component parts of the project.

SCOPE
This procedure is applicable to the preparation of all total installed cost estimates
produced by Granherne unless expressly instructed otherwise by client contract or
specification.
The scope of this procedure covers the requirements to produce costs estimates
described in the following sections.

3.0

DEFINITIONS
CAPEX

: Capital Expenditure. The cost of procuring equipment,

materials, services and manhour costs for the facility.

CRYSTALLISE

: Granherne developed suite of Excel spreadsheets based on

a series of hierarchically structured templates, to present
cost estimates in a standard format and categorisation,
including a summary tabulation of total project installed cost.

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Delta Cost Estimate

: A cost estimate prepared to develop a sensitivity which

involves the removal or major change to a base case
estimate designed to highlight the effect of, for example a
major process or power generation variation as part of an
overall development.

DEC

: Decommissioning cost of facility at end of production period.

FEED

: Front End Engineering Design.

LCC

: Life Cycle Cost. The total cost of a project including CAPEX,

OPEX and DEC.

OPEX

: Operating Expenditure. The cost incurred by the operating

company in the running of the facility.

TIPC

: Total Installed Project Cost.

Values Only

: Excel spreadsheet files from which embedded formulae

have been removed.

WBS

: Work Breakdown Structure (WBS). A diagrammatic

categorisation of the project work scope for each study
illustrating the scope of each estimate summarised in the
form of a hierarchical table.

4.0

RESPONSIBILITIES

4.1

Project Manager
The Project Manager shall:

4.2

confirm the responsibilities of each discipline engineer in terms of the data,

information and services to be delivered to the field development cost analyst;

define the schedule for provision of the deliverables by the discipline engineers
to allow for preparation of the cost estimate including checking, technical
reviews and QA checking, as described in Section 5 and 6 of this procedure;

determine the level and format of documents to be passed to the client as part
of the study deliverables; and

determine the extent of client involvement during the course of the study with
particular reference to meeting the ultimate deliverable schedule.

Lead Discipline Engineer

The Lead Discipline Engineer is responsible for the technical check of the prepared
cost estimate.

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4.3

Cost Analyst
The Cost Analyst is responsible for preparing the:

Work Breakdown Structure (WBS); and

cost estimate.

5.0

PROCEDURE

5.1

General
The kick off meeting will define the schedule and personnel responsibilities. The cost
estimate scope of work shall be summarised in the WBS which shall be prepared by
the Cost Analyst as detailed below.
No interactive electronic copies of the cost estimates shall be transmitted to the client.
Values Only or Acrobat copies shall be prepared for submission to clients if
electronic copies are required and have been specified in the contract. These shall be
prepared once final interactive electronic cost estimates are approved after which
values only copies shall be made of the electronic files. The Values Only files shall
be filed in a separate sub directory within the project data files.

5.2

Work Breakdown Structure

A project Work Breakdown Structure shall be prepared after the kick off meeting has
been held. The WBS document shall define the framework of the study and shall
identify the number and type of cost estimates which shall be prepared within the
scope of the study. The WBS shall clearly identify how many alternative options,
scenarios and sensitivities are to be included in the scope of the work.

5.3

Estimate Format
Cost estimates developed for each of the levels of estimate are described in 5.7.1 to
5.7.4 and summarised in Table 5.1 shall be prepared using a system of Excel
spreadsheets. These in turn should adhere to the Engineering Procedure Calculation
Management, GH-AA-A-113.
Class A cost estimates would normally be prepared using Questor or Fieldplan but
may use CRYSTALLISE if sufficient input data are available.
Granherne cost estimates for Class B, C, and D shall normally be prepared using the
in-house system of Excel spreadsheets based on a suite of templates and known as
CRYSTALLISE.
Class E estimates fall outside the scope of Granherne work-scope but are included for
completeness.

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Each detailed cost estimate shall contain a summary sheet which shall be supported
by more detailed sheets structured in a hierarchical format.
A separate project cost summary may be prepared as a project deliverable if the
number of separate cost estimates produced for the study requires this for clarity. A
project cost summary may be particularly relevant if a building block approach of cost
estimate increments is to be prepared for the study.
Each cost estimate shall be checked, reviewed and signed only once the estimate has
been subjected to a detailed quantitative and qualitative check. The document shall
first be checked by a qualified cost analyst in the project team who is familiar with both
the project definition and the mechanisms involved in the preparation of the cost
estimate. This individual will then sign the reliance notice page record of the cost
estimate before passing it to the engineer responsible for the original technical input
data for the cost estimate, for his acceptance and signature, as technically checked
and, finally the signed document will be passed to the project manager for approval
and signature. The above shall be carried out in accordance with Engineering
Procedure Checking of Engineering Documents, GH-AA-A-107.
Once all engineering checks have been completed and the relevant signatures have
been obtained, the standard Granherne document review will be carried out and the
QA signature obtained in accordance with the Corporate Practice, Review of Project
Deliverables, GH-AA-Q-004.
5.4

Estimate Methodology
A separate cost estimate methodology document shall not be prepared unless
specifically requested by the client.
Details of assumptions and exclusions used in the preparation of the cost estimate
shall be embedded within the cost estimate document and shall clearly define the
basis for preparation of the estimate. Norms and factors used in calculations within
the cost estimate shall be contained within the body of the cost estimate and shall be
clearly identified as such in a separate sheet entitled Norms and Factors.
As more project definition is available if possible for Class B and above, identification
of numbers of personnel assumed to be used in the performance of operations costed
in the estimate shall be clearly identified.
Similarly as project definition increases plant costs, day rates, labour productivities,
vessel rates, durations, mobilisation and demobilisation costs shall be included and
assumptions of costs and durations shall be clearly identified within the body of each
cost estimate. This level of definition would normally be for estimate Class B and
above.

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All assumptions and allowances included in the cost estimate shall be clearly identified
within the cost estimate.
5.5

Estimate Accuracy
It is generally required to give some range of anticipated estimate of the accuracy to
which the cost estimate has been prepared. This is normally stated as +/- followed by
the range of percentages from +/- 40% to +/- 10%. The level of accuracy attributed to
a cost estimate is dependent on the amount of information available in the preparation
of the estimate, the level of certainty of the accuracy of the input data information and
how fixed the design may be at the time of preparation of the cost estimate. See Table
5.1 for typical values.
The accuracy extremes are defined to be the 90/10 (upper) and 10/90 (lower)
confidence levels i.e. for the upper cost there is a 10% chance of the cost being
exceeded and a 90% chance of the cost being lower . While the accuracy extremes
are expressed as symmetrical, experience shows that project costs have a tendency to
skew towards the 90/10 i.e. the upper value.

5.6

Estimate Contingency
The amount of contingency included in an estimate is related to the degree of
confidence in the accuracy of the cost estimate as described in 5.5 above. The
amount included for contingency is exclusive of allowances made for such items as
line pipe and structural material cut and waste, growth on major equipment and
materials, increases in vessel sizes, materials specification or wall thickness, and is
defined as being an allowance to cover the cost of unknown unknowns. These may
for example be related to non availability of installation vessels at the time when the
installation actually takes place, unforeseen geotechnical difficulties, abnormal
weather conditions beyond those allowed for in normal weather delay allowances and
specific labour availability difficulties at the final installation time.
The cost estimates shall identify contingency as a separate line item relevant to each
separate element of the project and all contingency is summarised separately into the
cost estimate summary.
Typical values are given in Table 5.1.

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5.7

Level of Cost Estimate

Cost estimates are prepared at different times during a project. Initially very little
engineering definition is available and at that time more allowances and assumptions
are included within a cost estimate. As more definition is established and client
requirements are more clearly defined an increasingly specific cost estimate can be
prepared which reflects the increased information and understanding of the project
definition and possible alternative scenarios.
The principle of preparation of the different levels of cost estimate remains the same in
that the CRYSTALLISE spreadsheet templates may be used for all types of estimate.
As engineering definition becomes more and more clearly defined and additional
information available, input data from lead engineers allows for previously estimated
allowances and provisions to be expanded and costed more accurately thus
increasing the accuracy of the cost estimate.
It is important therefore to understand the significance of stating assumptions at all
levels of cost estimate preparation so that with increasing engineering input original
assumptions can be tested and revoked in favour of more recent and accurate
information. All assumptions fundamental to the preparation of each cost estimate
shall be included within the body of the estimate. In the CRYSTALLISE system these
comments are included in the File Notes spreadsheet, embedded within the
spreadsheet file. Similarly norms and factors used in the preparation of the cost
estimates will be clearly stated and will be included within the body of each cost
estimate in the Norms and Factors spreadsheet.

5.7.1

Class A - Order of Magnitude Cost Estimate

The purpose of this level of estimate is to provide an order of magnitude cost for
preliminary evaluation of the economic viability of a proposed development or
modification as defined in the project scope of work.
The content included in this level of estimate provides total cost summarised under
main headings which may be based on proprietary computer program output data
such as QUESTOR or FIELDPLAN, in-house historical data or any combination thereof.
The input information required to prepare this level of cost estimate typically comprises
a description covering process and utilities, duty, battery limits, global geographic
location, contracting and construction assumptions.

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5.7.2

Class B - Option Selection Cost Estimate

The purpose of a Class B, Option Selection, cost estimate is to provide comparative
costs summarised under main development headings and broken down into the cost
elements of supply, fabrication, installation and commissioning of equipment and
materials together with support costs covering design and engineering, procurement,
project management and project services for a number of defined alternative
engineering design solutions.
The input information typically required to prepare this level of cost estimate
comprises:

5.7.3

description covering process and utilities, duty, battery limits and location;

equipment lists with duties, specifications, descriptions and estimated net dry
weights for each alternative engineered solution;

estimated weights of major bulk materials;

options scopes and configurations; and

proposed method of project implementation, fabrication philosophy and

proposed schedule.

Class C - Preliminary Cost Estimate

The purpose of a Class C, Preliminary cost estimate is to provide an estimate of total
installed project cost at the completion of the feasibility study with sufficient detail and
reliability to test the project economic viability and to enable a decision to be made on
funding of further work on the proposed development.
The content comprises total project cost as described in Section 5.7.2 above,
supported with detail sheets for major equipment and bulk materials. Expenditure and
cash flow profiles, over the schedule for the complete project may also be required by
the client with this level of estimate.
The input information typically required to prepare this level of cost estimate
comprises:

description covering process and utilities, duty, battery limits and location;

equipment lists with duties, specifications, descriptions and estimated net dry
weights;

options scopes and configurations;

budget prices for major items of equipment from vendors in particular for supply
of specialist processing equipment;

estimated weights of bulk materials detailed by size, type and materials of

construction;

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5.7.4

any site information covering access, location and working conditions; and

proposed method of project implementation, fabrication philosophy and

proposed schedule.

Class D - FEED (Front End Engineering Design) Cost Estimate

The purpose of this, Class D FEED level of cost estimate is to provide an estimate of
total installed project cost based on the completed FEED to form the basis for a
financial investment decision (project sanction) and funding allocation.
The content comprises total project costs summarised as follows:

detailed estimate sheets covering equipment and bulk material supply,

fabrication, installation and commissioning;

detail sheets covering project management, design engineering, conceptual

design studies, construction design support, insurance and certification; and

cash flow and expenditure profiles would be prepared in this level of cost
estimate.

The input information typically required to prepare this level of cost estimate
comprises:

description covering process and utilities, duty, battery limits and location;

equipment lists with duties, specifications, descriptions and estimated net

weights;

options scopes and configurations;

budget prices for major items of equipment from vendor quotes;

site information covering access, location and working conditions;

detailed material take offs for bulks materials covering specification, type and
materials of construction;

cost indicators from fabrication and installation contractors;

estimated manhours for total home office work for engineering design,
procurement, project management and project services;

anticipated consultancies, survey and specialist services; and

proposed method of project implementation, project schedule and contracting

strategies.

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Table 5.1
Estimate Classes Descriptions
Estimate Type

CLASS A
(Type I)

CLASS B
(Type II)

CLASS C
(Type III)

CLASS D
(Type IV)

CLASS E (1)
(Type V)

Description

Order of
magnitude

Option
selection

Preliminary

FEED

Control
estimate

Used for

Preliminary
evaluation of
economic
viability

Comparison of
development
options

Viability of
project

Completion of
FEED

Final project
cost

Economic
Analysis

High level
assessment

Selection of
development
option

Management
approval of
fund allocation

Confirm
funding
requirements

Monitor
expenditure
against project
funds

Target
Accuracy

+/- 40%

+/- 30%

+/- 20%

+/- 15%

+/- 10%

Contingency
recommended

30%

20%

15%

10%

5%

Note:
(1)

5.8

Class E estimates are not included in this procedure as they fall outside the scope of work
carried out by Granherne Ltd. This procedure covers predictive estimates as opposed to cost
monitoring estimates. Class E estimates are included in the table for completeness.

Retrofit Cost Estimates

In some cases it is required to prepare the cost of either retrofitting equipment onto an
existing facility, or removing and replacing equipment. Cost estimates shall be
prepared for this type of work in the same way as for new build facilities using the
same cost estimating templates. The cost templates include a sheet specifically
designed for use with modifications, removals or rework cost estimates. It should be
noted that this work often requires the close cooperation of the project manager and
lead discipline engineers who have detailed knowledge of plant or topsides layouts.
This is in order to make valid judgements of feasibility of retrofit work and in order to
include sufficient allowances for the additional degree of difficulty of working on a live
facility with the associated hot work permit requirements, and space and lay down area
limitations.
Allowances, assumptions and numbers of personnel assumed to be included in these
estimates shall be clearly identified in the cost estimates.
Allowances such as location factors and productivity factors shall be included to take
account of additional degrees of difficulty of working in difficult, remote or offshore
locations. These factors shall be clearly identified within the cost estimate.

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5.9

Decommissioning Estimates
Specific cost estimates to cover the cost of decommissioning a facility may be
prepared to cover the estimated cost of taking a facility out of commission at the end of
the facility production period. The scope, format and detail of such estimates is entirely
dependent on the scale of the facility to be decommissioned and the relevant
legislation which may apply at the time in the region of the world in which the
decommissioned facility is located.
This type of estimate shall detail the allowances, assumptions and factors that have
been used in the preparation of each estimate.
Decommissioning costs may be included in the initial CAPEX construction cost in
which case an allowance for decommissioning would normally be included as a
percentage of the Total Project Cost.

5.10

Delta Cost Estimates

These estimates are prepared where a client has a base case design and wishes to
evaluate changes to certain fundamental assumptions. An example of this type of
estimate may be that of replacing offshore power machinery with onshore power
generation and cabling offshore and electric drivers. The cost estimate in this case is
prepared within the normal suite of CRYSTALLISE templates, with the addition of
negative quantities of equipment, representing the equipment that is to be replaced.

5.11

OPEX Costs
OPEX cost estimates can be prepared if sufficient useful and pertinent data can be
derived or obtained from client records. (In house or public domain data can be used
but generally clients require their data to be used.) OPEX costing does not follow the
same presentation format as CAPEX costing and is not included within the Granherne
CRYSTALLISE cost estimating model.
In the case of OPEX cost estimates a simple spreadsheet is used to summarise
operating costs covering maintenance procedures, plant equipment replacement
costs, plant operating manning levels, support team costs, engineering maintenance,
planned and unplanned maintenance allowances, plant and machinery costs, sparing
philosophy, fuel and lubricants usage, chemicals consumption and camp costs and
offshore travel and allowances as necessary.

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5.12

Risk Analysis
If required by a client, In addition to work covering the preparation of CAPEX and
OPEX costs and once capital cost estimate have been prepared, a risk analysis may
be performed using the prepared summary cost estimate as a basis. This is done to
confirm that the final cost estimate lies within the bounds of the stated plus or minus
cost scope defined by the level of estimate which has been prepared for the study.
See Sections 5.5, 5.6 and 5.7 above.
Risk analysis may be used to place the level of project cost uncertainty within a
framework of project risk concerns.

6.0

RECORDS
The original signed cost estimate and check prints will be maintained in accordance
with the Quality and Occupational HSE Procedure Control of Records, GH-AQ-Q-103.

7.0

REFERENCES

7.1

Procedures
GH-AA-A-107

Checking of Engineering Documents

GH-AA-A-113

Calculation Management

GH-AA-Q-004

Review of Project Deliverables

GH-AQ-Q-103

Control of Records

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