UCEC 2014 Gathering Spotlights Contingency Setting Concepts

Geoff Emeigh

Members of IPA’s Upstream Cost Engineering Committee (UCEC) gathered June 11-12, 2014, in The Woodlands, Texas, to review and discuss metrics, trends, and tools for the development of project conceptual estimates, and practices for improved asset evaluations.

Established in 1998 and today made up of 16 member companies who provide project cost data to IPA, the UCEC’s objective “is to improve project and business results by providing metrics for better cost engineering,” said IPA Analyst Carlton Karlik, the committee’s coordinator. Member company representatives gather once a year to learn about and review new UCEC metrics packages that are prepared by IPA. The upstream metrics packages are used by companies to compare their upstream project cost and schedule outcomes with industry cost and schedule norms, and in general boost business project estimate assurance and evaluation quality.

This year’s meeting, hosted by Anadarko Petroleum, had more than 60 attendees. Karlik said metrics for onshore projects in the Middle East and Russia were included in this year’s metrics package, as well as a variety of more detailed platform duration metrics worldwide.

A highlight at this year’s meeting was an IPA study on required contingency and contingency setting for exploration and production (E&P) offshore projects. The study examined different contingency setting concepts and, for each concept, drilled down into project data to the line item level. Among the study’s findings: required contingency depends on the contingency concept selected for a project; cost growth and contingency allocation for line items varies considerably across concepts; and most required contingency is allocated to cover transportation and installation (T&I) and hook-up and commissioning (HUC) costs for offshore pipeline and subsea work. Not surprisingly, cost estimating methods and practices significantly affect required contingency. An industry-led panel discussion followed the presentation of the study by IPA Analysts Jason Walker and Qian Zhou.

Other notable research presented at the UCEC meeting focused on setting attainable project target dates for first oil, and offshore carryover work. The attainable schedule targets study in particular provides a suite of project screening tools that can be used to improve a company’s project first oil estimating capability. The offshore carryover work study characterized the types of work that get carried over, highlighted drivers of work carryover, and quantified the effect on project cost and schedule when work is carried over.

IPA’s companion committee for downstream projects, the Cost Engineering Committee (CEC), is gearing up for its annual meeting to take place on September 16-17, 2014, in Tysons Corner, Virginia.

This article originally appeared in the IPA Newsletter 2014-Q3 (Volume 6, Issue 3)

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