Author Archives: kristal2011aace

W8_Mohammed_Production Expansion


Problem definition

The Government has directed the company to increase the company oil production rate by additional 40,000BOPD before end of 2013 as per the encourage exploration results. As facility department our role is to decide which facilities needed to cover such expansion. The required facilities and the alternatives are the main challenges which are answered in the below Blog. The blog will highlight in brief the required WBS as per the proposed scope for the proposed options.

Development of the feasible alternatives

The targeted area is divided to two parts with respect of location and reservoir quantities expected, the facilities were proposed as following:

Scenario 1: Build one FPF with capacity covering the production of two areas.

Scenario 2: Build small capacity FPF in each area.

 

Analysis and comparison of the alternatives

Scenario 1: Development of AREA-1

  1. AREA-1 & AREA-2 Field Surface Facilities (FSF) i.e. wells,  OGM and trunk line to Hadida FPF
  2. AREA-1 FPF.
  3. Transit line from AREA-1 to CPF, for LC & HC. Design capacity is 40,000 BOPD. At least one middle pump station shall be considered for future.
  4. Consider 2 phases: short term or early production and long term. The early production is to export qualified 10,000 BOPD of LC from
  5. Power Generation Plant and Distribution for FPF and other FSF Requirements.
  6. Instrumentation, Control Philosophy &Telecommunication
  7. Expansion in the Central Processing Facilities (CPF) to handle the extra fluid

Scenario 2: Development of AREA-1 & Area-2, Will be same as above, in addition to the following:

  1. AREA-2 FPF
  2. Transit Line from AREA-2 to AREA-1
  Development of AREA-1 WBS     Development of AREA-1 & 2 WBS
1.0 Crude Expansion Projects    1.0 Crude Expansion Projects
1.1 Conceptual design 1.1 Conceptual design
1.2 Basic design 1.2 Basic design
1.3 Long Lead Items 1.3 Long Lead Items

1.3.1

Compressors

1.3.1

Compressors

1.3.2

Line Pipe

1.3.2

Line Pipe
1.4 Pre-Award Phase (Tendering and Award) 1.4 Pre-Award Phase (Tendering and Award)

1.4.1

Issuing of ITB

1.4.1

Issuing of ITB

1.4.2

Bid Evaluation

1.4.2

Bid Evaluation

1.4.3

Shareholders & Government Approvals

1.4.3

Shareholders & Government Approvals

1.4.4

Award

1.4.4

Award
1.5 Post Award Phase (EPCC & PCC Projects) 1.5 Post Award Phase (EPCC & PCC Projects)
1.5.1 Central Processing Facility Expansion (PCC) 1.5.1 Central Processing Facility Expansion (PCC)

1.5.1.1

Procurement

1.5.1.1

Procurement

1.5.1.2

Construction

1.5.1.2

Construction

1.5.1.3

Commissioning

1.5.1.3

Commissioning
1.5.2 EPCC for Field Processing Facility of AREA 1 1.5.2 EPCC for Field Processing Facility of AREA-1

1.5.2.1

Engineering

1.5.2.1

Engineering

1.5.2.2

Procurement

1.5.2.2

Procurement

1.5.2.3

Construction

1.5.2.3

Construction

1.5.2.4

Commissioning

1.5.2.4

Commissioning
1.5.3 EPCC for Pump Station (EPCC) 1.5.3 EPCC for Pump Station (EPCC)

1.5.3.1

Engineering

1.5.3.1

Engineering

1.5.3.2

Procurement

1.5.3.2

Procurement

1.5.3.3

Construction

1.5.3.3

Construction

1.5.3.4

Commissioning

1.5.3.4

Commissioning
1.5.4 PCC for Field Surface Facility (AREA-1 & AREA-2) 1.5.4 PCC for Field Surface Facility (AREA-1 & AREA-2)

1.5.4.1

Engineering

1.5.4.1

Engineering

1.5.4.2

Procurement

1.5.4.2

Procurement

1.5.4.3

Construction

1.5.4.3

Construction

1.5.4.4

Commissioning

1.5.4.4

Commissioning
1.5.5 Transit Line from AREA-1 to CPF (170km) 1.5.5 Transit Line from AREA-1 to CPF (170km)

1.5.5.1

Engineering

1.5.5.1

Engineering

1.5.5.2

Procurement

1.5.5.2

Procurement

1.5.5.3

Construction

1.5.5.3

Construction

1.5.5.4

Commissioning

1.5.5.4

Commissioning
    1.5.6 Transit Lines from AREA-1 to 2 (20km)
   

1.5.6.1

Engineering
     

1.5.6.2

Procurement
     

1.5.6.3

Construction
     

1.5.6.4

Commissioning
      1.5.7 EPCC for Field Processing Facility of AREA-2
     

1.5.7.1

Engineering
     

1.5.7.2

Procurement
     

1.5.7.3

Construction
     

1.5.7.4

Commissioning
         

Selection of the preferred alternatives

From the above WBS its shown that the only difference is in the additional FPF of AREA-2 and the additional transit line from AREA- to AREA-1, but actually, there are many differences are not shown i.e. The difference in the capacities which are resulted in the difference in the scope and accordingly the cost estimate which changed from one scenario to another.

Following the same WBS, the estimation were done for both scenarios and we found that it is better to go for scenario two but in two phases, firstly to build only one FPF and later to construct the second one. The conceptual study is on progress and the results of our decision will be clearer after getting the result of the conceptual study.

Performance monitoring and the post evaluation of results

The result of the chosen option will be determined after the conceptual study.

 

Conclusion

The company has taken the risk and concentrates on the second scenario considering it’s the most optimum choice and its added value more than the first scenario.

 

References

* Humphreys & Associates, Project management using Earned Value.

* W14_ADI_WBS Development for conceptual study phase of project

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W7_Mohammed_when should i start building my own house


Problem definition

 

I bought my own land two years ago through bank. Now it’s the time to think about building this land, this analysis will guide me through to the best time / year to start this capital investment in the contraction of my own house considering the material prices & available fund.

 

Development of the feasible alternatives

 

As estimation its need not less than 100,000USD as to complete one story building given that the land is already available, Here is the evaluation of my possible choices to start the construction of my house, my strategy is to save much I the beginning and then pay the balance in installments, the plan could be started in one of the below options:

1. End of 2012

2. End of 2013

3. End of 2014

 

Analysis and comparison of the alternatives

 

Considering that the construction will take around 6 months to one year as an average, the above three options have been evaluated according to the following factors:

-My savings:

1. By end of 2012 ——- I may start with 100,000SDG = 40,000USD

2. By end of 2013 ——- I may start with 140,000SDG = 55,000USD

3. By end of 2014 ——- I may start with 180,000SDG = 70,000USD

-Inflation trends in Sudan based on the central bank of Sudan records were given as 16%.

 

Selection of the preferred alternatives

Considering the time value of money and the inflation rate in Sudan from the central bank of Sudan, by using the relating present and future equivalent values of single cash flows, as follows:

F = P (1+i)ᴺ

 

Given that:

F:         Future single sum

P:         Is the present Value

i :          inflation or interest rate

N:         Period

 

Solution

Back to the above options:

 

P:         The nowadays estimation of 100,000USD is needed to complete one story building given

i:           an average of 16% as per the Central Bank of Sudan records

 

1. End of 2012:

F = P (1+i) ᴺ

   = 100,000 (1+0.16)¹

   = $116,000

Considering that I’m planning to save $40,000 by end of 2012 then the difference is going to be $76,000

 

2. End of 2013:

F = P (1+i) ᴺ =

                           = 100,000 (1+0.16)²

                           = $134,560

Considering that I’m planning to save $55,000 by end of 2013 then the difference is going to be $79,560

 

3. End of 2014:

F = P (1+i) ᴺ =

                           = 100,000 (1+0.16)³

                           = $156,089

Considering that I’m planning to save $70,000 by end of 2012 then the difference is going to be $86,089

 

 

Conclusion

 

It’s clear that I should plan for 2012 since the difference is the least among the other options of 2013 and 2014.

 

References

*  Engineering Economics-Fifteen Edition, chapter 4, Relating Present and Future Equivalent Values of Single Cash Flows, page113

 

W6_Mohammed_Run WayExtension


Problem definition

Should our company extend the under construction Run Way?

Development of the feasible alternatives

Our company received a request from the government to extend the under construction runway for another 1km. Our company has to right to accept or reject this request. But in other hand our company is looking to the benefit and cost of this project ie.operate a large size jet aircrafts instead of the small size aircraft operated now; this will save mainly save the time and the cost of the flight, but the cost of this extension is rather high. Here I’m using the conventional Benefit–Cost Ratio method to make go/no-go decision on the RW extension.

 

 

Analysis and comparison of the alternatives

-The cost of extending the runway additional 1000 m includes supply and process of earthworks, asphalt works, fence extension, and extension of AFL system and Compensation of lands. The cost estimation as per current market price for runway extension is about $6,000,000 including but not limited to (land Compensation Cost, EPCC cost: is excavation, BF, asphalt works, marking system, Fence System, AFL system).

-An annual estimated saving to company is estimated 800,000USD plus per year, moreover saving a lot of time per flight, considering using Jet Aircrafts (50 seats) or even Boeing 737 (126 seats) which will need only 45min to reach the field airport from Khartoum airport, instead of using only Dash8, Fokker 50 which need about 2 hours to reach our field airport.

-There is about 300,000USD for maintenance per year (maintenance of asphalt, marking, and lighting).

-Lifetime is 30 years

-International finance interest rate 6%

(A/P,6%,30) = 0.07265

B-C      = AW (benefit of the proposed project) / AW (total costs of the proposed project)

            = AW (B) / CR+AW (O&M)

Where:

AW (B) = Annual worth of benefit of the proposed project

CR         = Capital recovery a mount

O&M   = Operating and maintaince cost of the proposed project

At the interest rate of 6% per year the conventional B-C ratio of the proposed R/W extension is

B-C= 800,000 / [6,000,000 (A/P, 6%, 30) + 300,000] = 1.04

Selection of the preferred alternatives

Based on the above results, which shows the B-C > 1 its recommended that the company should take the decision of go and do the R/W extension.

 

 

Conclusion

The cost Benefit Ratio method is an interesting procuders for making go/no-go decision on independent projects. Applying this method to the proposed project company can easily decide to go on for the extension of the under construction R/W.

 

 

References

*  The benefit-Cost Ratio Method P429, Engineering E economics 15th Edition

More photos for ITC and Jumbo drill


ITC

    

Jumbo drill

 

Photo for ITC and Jumbo drill machine_ET_Kristal2011


 

ITC

            

 

 

 

 

Jumbo drill

 

W9_ET_Choosing the Most Economical Machine for Production_Kristal2011


Problem definition:

Trying to calculate the most economical machine for production using several assumptions or actual data for ITC machine and Jumbo drill as explained before in W8 blog posting.

Development of the feasible alternatives:

The most economical machine will be used in critical areas of production.

Selection of criteria:

The most economic value and capital investment associated with the machines is about the same and can be ignored.

Analysis and comparison of the alternatives:

 

ITC

Jumbo

Production rate (m advance)

3

2.75

Utilization (hours/shift) 1 shift = 12 jam

8

8

Percent parts rejected

10%

5%

Assuming the material cost is $15 per part, and all defect free parts produced can be sold for $50 each. Labor cost is $5 per hour for Jumbo and $2 per hour for ITC based on the competency matrix set up. Variable overhead rate for traceable cost is $10 per hour.

It is also assumed that the daily demand for this part is large.

Profit per day     = Revenue per day – Cost per day

        = (Production rate)(Production hours)(defect free/part) x [1 – (%rejected/100)] – (Production rate)(Production hours)(material cost/part) – (Production hours)(labor cost+ traceable cost)

ITC        = $816/shift

Jumbo        = $756.25/shift

Selection of the preferred alternatives:

Based on the formula above, it is recommended to select ITC machine to maximize profit per shift.

Performance monitoring and post-evaluation of results:

In weekly and monthly plan, we need to source more areas for ITC working in high grade heading to maximize profit per shift to achieve Ounces of gold.

Reference:

  1. Sullivan William. Wicks M, Elin. Koelling C, Patrick. Engineering Economic, Fifteenth edition. Pearson International Edition, 2009.


W8_AN & ET_ITC Machine or Jumbo drill for Underground Mining _Kristal2011


Problem recognition:

Company “X” is looking for an opportunity to buy a new ITC machine to do development of underground mining. A typical machine that currently using is a Jumbo drill machine. Jumbo drill requires using explosive to charge at drill holes made by Jumbo. ITC does not need explosive as this machine is a continuous mining machine with hammer or cutter attached on the boom and also equipped by a single line conveyor at the back to allow moving the ore or waste.

Feasible alternative:

Is to buy an ITC machine or just continue with the Jumbo drill machine.

Criterion:

Take the one with the bigger NPV.

Analysis and Comparison:

Below is the cost analysis made, with assumption that service life is 5 years and salvage value is 0

Cost Analysis

No.

Equipment Total Price

Consumable Cost / month

Labour cost / month

Explosive Cost

Estimated Maintenance Cost

Cost Saving
(ITC)

Cut Length
(Meter Advance)

Estimated Tonnes Produced

Average Kencana Grade (g/t)

Estimated Oz Recovered / year

Estimated Price / year
1oz gold = USD 1363.17

Additional Revenue

ITC

Jumbo

ITC

Jumbo

ITC
(6 op.s)

Jumbo
(6 op.s, 6 off.s)

ITC

Jumbo

ITC

Jumbo

Labour cost diff.

Explosive Cost

ITC

Jumbo

ITC

Jumbo

July 2010 – June 2011

ITC

Jumbo

ITC

Jumbo

ITC
1 $1,403,915.03 $ 1,281,955.81 $303,667.36    $ 84,683.29 $ 224,629.48 $ – $225,051.49 $693,117.56 $ 427,291.64 $ 139,946.19 $ 225,051.49

1,199

1,176

98,809

91,159

25.30

80,372.42

74,150.15

$109,561,273.89

$101,079,256.04

$8,482,017.84
ITC to Jumbo Performance

$121,959.22

$303,667.36

($139,946.19)

($225,051.49)

$265,825.92

  

23.77

7,649.58

  

6,222.27

$8,482,017.84

  

        

($61,330.32)

      Total Cost saving for ITC $ 99,171.76

  

           

Total operational cost ITC

$388,350.65                                          
           

Total operational cost Jumbo

$449,680.96                                          
           

  

  

  

  

                                            
           

Maintenance Cost Different

$265,825.92                                          
           

  

  

  

  

                                            

Economic Analysis

  

Capital Investment

Annual Expenses

Annual Production

Annual Revenue

Service Life (Years)

Salvage Value

  

Operations

Maintenance

Total

ITC

$1,403,915

$388,351

$693,118

$1,081,468

$109,561,274

$108,479,806

5

$0

Jumbo

$1,281,956

$449,681

$427,292

$876,973

$101,079,256

$100,202,283

5

$0

                 
                 
    ITC Jumbo          
  Capital Investment

($1,403,915.03)

($1,281,955.81)

         
  Annual Revenue Year 1

$108,479,805.68

$100,202,283.44

         
  Annual Revenue Year 2

$108,479,805.68

$100,202,283.44

         
  Annual Revenue Year 3

$108,479,805.68

$100,202,283.44

         
  Annual Revenue Year 4

$108,479,805.68

$100,202,283.44

         
  Annual Revenue Year 5

$108,479,805.68

$100,202,283.44

         
  Salvage Value

$0.00

$0.00

         
                 
  MARR

20%

           
                 
  NPV =

$323,017,108.76

$298,384,209.48

         

Selection of the preferred alternative:

Looking at NPV, ITC has bigger NPV compares to Jumbo drill machine. So that, it is recommended to buy an ITC machine for mining in underground mine.

Reference:

  1. Sullivan William. Wicks M, Elin. Koelling C, Patrick. Engineering Economic, Fifteenth edition. Pearson International Edition, 2009.