Upstream Operator Reduces Risk and Increases Confidence in OpEx Budget for New Gulf of Mexico Project

CLIENT WANTS TO VALIDATE PREDICTED OPEX BUDGET AND SET ACHIEVABLE TARGETS

An upstream operator needed an independent third party to evaluate a potential new project in the Gulf of Mexico and estimate its cost. The client had already prepared its own estimates internally and wanted to verify that its predicted budget and OpEx estimates were accurate before presenting them to managers for approval. The operator had heard of Solomon’s New Project OpEx Estimator tool and approached Solomon to explore the opportunity. Because it had only one project to evaluate, the operator asked that Solomon use the tool to run the calculations rather than opt for subscription-based access to the tool. Solomon improved and validated the accuracy of the operator’s OpEx estimates for different development scenarios and established valid and achievable targets for further operation of the field.

RUNNING THE CLIENT’S DATA THROUGH THE SIMULATION

The OpEx Estimator uses over 35 years of verified operational data collected through years of worldwide upstream benchmarking studies. The tool delivers OpEx estimates both for entire projects and for specific project cost categories, including well servicing, maintenance, chemicals, energy, staffing, transportation, and more.

Solomon collected the client’s technical data and ran it through the OpEx Estimator. To provide accurate benchmarked results, the data was compared to normalized cost data that takes into account differences among fields in areas such as structure, technical completion, age, reservoir composition, and depletion.

An estimate was given for each efficiency benchmark: P50 (global average cost efficiency benchmark), P25 (top 25% global cost leader efficiency benchmark), and P10 (top 10% global cost leader efficiency benchmark).

COST ESTIMATES HIGHER THAN PREDICTED

The simulation results were used to build a report that included cost estimates for total operating cost, Surface Repair and Maintenance (SRM), Field Labor, Chemicals, helicopter and boat transportation, field General and Administrative (G&A), energy, well servicing/workover, overhauls, gas pipeline expenses, and more.

Solomon estimated an average annual operating budget of 100M US dollars (USD) based on P50 performance (Figure 1). The data revealed that the operator’s estimated project costs would be substantially higher than what its internal predictions showed. The discrepancy triggered numerous discussions with Solomon advisors.

The main reasons for the higher total costs were the estimated SRM and energy costs. The operator’s energy costs were three times higher than those of a similar operator peer group (Figure 2). Solomon advised the client that using electricity to power its major rotating equipment would improve energy efficiency.

Solomon recommended that the client not aim for cost leadership in SRM (Figure 3) or Labor, as the data indicate that cost leadership in these two categories can have a negative impact on production reliability. Solomon encouraged the client to instead focus on the reliability of the asset as a way of ensuring that the proposed P25 budget for SRM would not affect the asset’s overall reliability and performance. Solomon further advised the client to pursue cost optimization/cost savings in categories other than SRM and Labor.

OPERATOR APPRECIATES SOLOMON’S ROBUST ADVISORY SERVICE AND RECOMMENDATIONS

The operator greatly appreciated how Solomon’s recommendations and feedback on the differences between projections increased the operator’s confidence in its decision-making and planning. The operator also appreciated how its increased understanding of the cost of operations over time would help it determine when the right time had arrived to divest the property. Lastly, the operator valued the knowledge it had gained of how its asset compared to similar assets held by competitors—knowledge that would help it better plan out the life of the project.

Using the data generated by the OpEx Estimator and Solomon’s recommendations, the client was able to validate and improve its OpEx estimate for its new project and set achievable targets.