How to Reduce Project Costs via Conceptual and Pre-FEED Studies

Oil and gas exploration and producing companies are faced with decisions to reduce costs by reducing capital expenditure on greenfield and brownfield projects as well as curtailing the cost of running existing operations.

It is a well-known fact that one of the most effective ways to reduce overall project capital expenditure is by ensuring a rigorous, quality, and expertly executed project front-end loading. This will include all the front-end preplanning and studies such as feasibility/appraisal and conceptual selection studies. These front-end studies, if executed expertly, provide one of the biggest opportunities to significantly reduce project spending while optimizing the return on investment. As such, these front-end studies should not be rushed or compromised in quality as they are the foundation on which the entire project will be built. Project mistakes and inefficiencies exponentially get more expensive to rectify further down the project lifecycle. This is why the project front-end loading is very important.

FEL (Front-end loading) provides opportunities for project optimization and I have found integrated asset modeling to be a key tool in this phase of field development planning. Conceptual studies provide the necessary information for optimizing expenditure for both greenfield and brownfield development projects.

This is because it enables you to:

1. Cost-Effectively Compare Various Field Development Options: It is important to rigorously consider all feasible project options. Even options that may not initially look attractive may become more interesting when analyzed against certain key performance indicators. At the conceptual stage, most of the effort is spent in modeling, analysis, and high-level costing. All these activities are relatively much cheaper than the actual facility. As long as the activities are done properly and to the right standard of quality, they provide a cost-effective way to simulate all the different real-life scenarios that various project options represent.

The cost-savings from this alone are virtually equivalent to the costs of the various options being considered. When comparing various development options, it is important to early on establish a set of criteria, key success factors, and objectives that will be used to evaluate all the options. This should be done while retaining some flexibility as it is unlikely that anyone development option will meet all the criteria. The best option is that which meets most or all of the criteria, especially the most important and non-negotiable ones.

2. Carry out Project Optimization: Conceptual studies can be very useful in optimizing a brownfield or greenfield development project. When comparing options, and even after selecting a preferred development option, the analyses carried out often presents opportunities for asset, production and project optimization. These can lead to significant cost savings. Some of these opportunities may not be apparent at the initial stages of preparing for such studies. Some degree of flexibility therefore needs to be maintained regarding the development options being considered and their descriptions.

3. Optimize Life of Field Costs: Front-end studies provide opportunities to reduce not just initial costs prior to commencement of field operations but also the life of field costs. This is because, when done properly, they give insight into the major modifications and enhancements to critical equipment necessary in the course of the life of the field. Some of these future modifications will be better served by creating allowances and removing constraints at the initial design stage.

This ensures that such modifications can be executed smoothly without much disruption. The ability to successfully create such allowances for future modifications can lead to significant future cost savings in terms of effort as well as lost production.

For example, knowing from a good conceptual study that a centrifugal compressor wheel to a bigger capacity machine will be needed further down the line can be very useful information. With this information, you can allow for the future size of internals in the initial casing design even though that may not be needed from day one.

4. Estimate Project Capital Expenditure: The ability to estimate total project costs including equipment and installation costs is one that is beneficial in project development. Front-end studies provide one of the earliest opportunities to do that. Although the estimates at this stage are not always to the highest degree of accuracy, they still provide a good basis from which costs can be optimized.

5. Eliminate Expensive & Cumbersome Development Options Early: Sometimes it may not be initially apparent which development options may be prohibitively expensive or cumbersome. This is because the total cost of implementation can depend on the combination of various factors such as equipment costs, installation costs, geographical location, environmental considerations, future modifications, operational costs, etc. 

When all these cost contributing factors are rigorously considered together (as they should in a proper conceptual study), it can then become obvious that some options being considered are prohibitively more expensive or complex. These can be identified and eliminated early from the options being considered. Alternatively, they can be tweaked to ensure that the costs of implementation of the effort required are more acceptable.

6. Find and Analyse Alternative Project Options: Sometimes conceptual studies help you to discover additional development options which might not have been on the original list of options being considered. These newly discovered options tend to be variations of one or more options on the original list. The reason these are discovered later in the study is that it is during the study that the main potential bottlenecks and constraints become more apparent. Hence by tweaking some of the features of an existing option in order to surmount these bottlenecks, a new and more efficient option is created. This is very valuable to the overall process and can lead to significant project cost savings worth hundreds of millions of dollars.

7. Order Long Lead Equipment Early: The procurement of long-lead heavy-duty machinery and equipment is usually a major critical path in an EPC (engineering, procurement, and construction) project. The earlier this can be done, the better for the project schedule and delivery. For example, it is not unusual for rotating equipment manufacturers to have lead times in excess of 12 months. Very often, these manufacturers have busy order books and long waiting lists for the design, manufacture, and testing of equipment.

One of the advantages of a rigorous conceptual and Pre-FEED study is that not only can the optimum developmental option be selected but critical equipment can be selected and specified to sufficient detail enabling the initiation of the procurement process for long-lead equipment in parallel with or even before the project FEED (Front-End Engineering Design) commences properly. I have been involved in projects where this approach resulted in accelerated project delivery and significant savings in costs.