Project Cost Estimating (20-00098PR)

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Business Regulation
DG E&P
Project Cost Estimating
Type: Procedure Scope: Business Global Code: 20-00098PR
Owner: D. Global Projects Revision: 0.0
Object
This document establishes the requirements for the cost estimating process and the characteristics to be met by
development and decommissioning projects cost estimates along the project life cycle, according to GIP
methodology.
Scope of application
This document applies to every E&P operated project and co-operated projects where Repsol is leading the Joint
Venture for the cost estimates of the Development and Decommissioning projects.
In the special case of non-operated and other co-operated projects, all reasonable attempts to influence the partners
into implementing this procedure will be made.
Framework regulations
 QA&QC Process of E&P Projects and Assets (20-00003PR)
© REPSOL, S. A., 2016. All rights reserved. This document is the exclusive property of Repsol, S. A. and may only be used by the companies of the Repsol Group and their staff, in the exercise of their respective roles as employees
of the Repsol Group, except with the express written consent of Repsol, S. A. It may not be revealed to third parties, copied, distributed, reproduced, made public and/or modified, totally or partially, without the express written consent
of Repsol, S. A. Repsol reserves the right to take appropriate action against any violation of the terms in this section.
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Table of contents
1. Definitions and abbreviations .............................................................................................................................. 4
1.1. Definitions ............................................................................................................................................. 4
1.2. Abbreviations ........................................................................................................................................ 7
2. Introduction ........................................................................................................................................................... 8
3. Project Cost Estimates through the Asset Life cycle ....................................................................................... 9
3.1. Exploration and Appraisal projects ..................................................................................................... 10
3.2. Visualization Phase ............................................................................................................................. 10
3.3. Conceptualization Phase .................................................................................................................... 10
Concept Selection ............................................................................................................................... 10
Concept Maturity ................................................................................................................................. 10
3.4. Definition Phase .................................................................................................................................. 11
3.5. Execution Phase ................................................................................................................................. 12
4. Cost Estimate Classes........................................................................................................................................ 12
5. CAPEX Estimate Breakdown Structure. Cost Estimate Templates ............................................................... 18
6. OPEX .................................................................................................................................................................... 19
6.1. Leases and Rents ............................................................................................................................... 19
7. ABEX .................................................................................................................................................................... 20
8. Cost Expenditure Curves ................................................................................................................................... 20
9. Escalation and Updating .................................................................................................................................... 21
10. Cost Estimate Plan.............................................................................................................................................. 23
11. Cost Estimate document contents .................................................................................................................... 24
11.1. Basis of Estimate ................................................................................................................................ 24
11.2. Cost Estimate document contents ...................................................................................................... 25
12. Quality Control .................................................................................................................................................... 25
13. Roles and Responsibilities ................................................................................................................................ 26
14. Appendices .......................................................................................................................................................... 28
Appendix I. Estimate Summary Template and Description .................................................................................... 28
A) Estimate Summary Template .............................................................................................................. 28
B) Estimate Summary Description ........................................................................................................... 28
Appendix II. Cost Estimating methods ..................................................................................................................... 28
A) Ratios Methods ........................................................................................................................................... 28
B) Williams Rule ............................................................................................................................................... 29
C) Factored methods ....................................................................................................................................... 30
C 1) Lang’s Method ............................................................................................................................. 30
C 2) Gallager’s Method ....................................................................................................................... 30
C 3) Miller’s Method ............................................................................................................................ 31
C 4) Hand’s Method ............................................................................................................................ 31
C 5) Chilton’s Method .......................................................................................................................... 32
C 6) Peters, Timmerhaus’s And West Factors.................................................................................... 33
D) Cost Indexes ............................................................................................................................................... 36
D 1) Examples of Cost Indexes .......................................................................................................... 37
E) Contingency estimating methods ................................................................................................................ 41
E 1) Expert judgment .......................................................................................................................... 42
E 2) Predetermined guideline ............................................................................................................. 42
E 3) Simulation analysis ...................................................................................................................... 42
E 3. 1) Range estimating ..................................................................................................................43
E 3. 2) Monte Carlo simulation .....................................................................................................44
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E 3. 3) Other Contingency Estimating Methods ...........................................................................45

Appendix III Specific Cost Estimates ....................................................................................................................... 45
A) Subsea and Offshore Pipelines Cost Estimating ................................................................... 45
B) Location factor ....................................................................................................................... 48
Appendix IV. Cost Estimating Process for detailed estimates .............................................................................. 48
Appendix V. Reference Documentation ................................................................................................................... 49
Approval ...................................................................................................................................................................... 51
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1. Definitions and abbreviations

1.1. Definitions
 Accuracy (Expected Accuracy Range)
AACEI 10S90: “Typical variation in low and high ranges after the application of contingency (determined at a 50%
level of confidence). Typically this results in a 80% confidence that the actual cost will fall within the bounds of the
low and high ranges”.
 Allowances
AACEI 10S90: “Resources included in estimates to cover the cost of known but undefined requirements for an
individual activity, work item, account or sub-account.”
 Base Estimate
AACEI 10S90: “The CAPEX Estimate excluding, Escalation, foreign currency exchange fluctuations, Contingency
and Management Reserves”.
 Contingency
AACEI 10S90: “An amount added to an estimate to allow for items, conditions, or events for which the state,
occurrence, or effect is uncertain and that experience shows will likely result, in aggregate, in additional costs.
Typically estimated using statistical analysis or judgment based on past asset or project experience.
Contingency usually excludes:
 Major scope changes such as changes in end product specification, capacities, building sizes, and
location of the asset or project.
 Extraordinary events such as major strikes and natural disasters.
 Management reserves.
 Escalation and currency effects.
Some of the items, conditions, or events for which the state, occurrence, and/or effect is uncertain include, but
are not limited to, planning and estimating errors and omissions, minor price fluctuations (other than general
escalation), design developments and changes within the scope, and variations in market and environmental
conditions. Contingency is generally included in most estimates, and is expected to be expended.”
According with the above definition, in Repsol it is understood that contingencies are strongly related with project
uncertainties within the project scope and main estimate basis and assumptions. In other words, contingencies
rely on the level of project definition.
Contingency is estimated as the difference between P50 and Base Estimate, therefore Base Estimate plus
Contingency gives the Estimate figure with equal probability of overrun and underrun.
 Committed Cost
AACEI 10S90: “A cost which has not yet been paid, but an agreement, such as purchase order or contract, has
been made that the cost will be incurred”.
 Cost Baseline (Cost Baseline is equivalent to Control Baseline)
AACEI 10S90: “The budget and schedule that represent approved scope of work and work plan. Identifiable
plans, defined by databases approved by project management and client management, to achieve selected
project objectives. It becomes basis for measuring progress and performance and is baseline for identifying cost
and schedule deviations.”
Cost Baseline is defined in PMBOK as:
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“The approved version of the time-phased project budget, excluding any management reserves, which can be
changed only through formal change control procedures and is used as basis for comparison to actual results.”
Cost Baseline excludes:
 Major scope changes.
 Risk events impact.
 Management Reserves.
It does include:
 Contingency.
 Escalation.
 Costs for identified risks and opportunities responses.
 Cost Estimate Nominal
Is the Cost Estimate Real Term plus escalation.
Nominal is sometimes referred as Money of the Day or Current Money.
Cost Estimate Nominal excludes:
 Currency effects.
 Cost Estimate Real Term
Is the Cost at Estimate Baseline date that is calculated as Base Estimate plus Contingency.
Cost Estimate ReaI Term excludes:
 Escalation.
 Currency effects.
 Escalation
AACEI 10S90: “A provision in costs or prices for uncertain changes in technical, economic, and market conditions
over time. Inflation (or deflation) is a component of escalation”
Escalation reflects changes in price-drivers such as productivity and technology as well as changes in market
conditions such as high demand, labor shortages, profit margins, and so on. Escalation includes the effects of,
but differs from, inflation which is a general change in prices caused by debasement of the value of a currency or
other monetary policy impacts. Non-monetary policy influences, such as supply-and-demand, are often
components of escalation.
Note that, when the escalation factors are negative, the ‘Escalation’ could be referred as ‘De-escalation’
 Inflation
An overall general upward price movement of goods and services in an economy.
 Management Reserve
AACEI 10S90: “An amount added to an estimate to allow for discretionary management purposes outside of the
defined scope of the project, as otherwise estimated. Use of management reserve requires a change to the
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project scope and the cost baseline, while the use of contingency reserve funds is within the project’s approved
budget and schedule baseline.”
Management Reserves are strongly related with (1) risks impact and (2) project uncertainties when it is intended
to reach confidence levels above P50. Typically a P75 is reported.
 Price Elasticity
Measures the sensitivity of a variable (supply or demand) to a change in the price. The higher the elasticity of a
variable the greater the sensitivity is.
 Price Level
The year of which the cost estimate is based upon. Cost estimates are required to be developed based on the
current year price level. Historical cost estimates are “updated” to the current year based on the appropriate cost
indices.
 Sunk Cost
AACEI 10S90: “A cost that has already been incurred and which should not be considered in making a new
investment decision.”
 Updating (costs)
Bringing costs from the past up to the Estimate Baseline date price level.
AACE Recommended Practice ‘Cost engineering terminology’. AACEi RP10S-90 can be used as reference,
always prevailing what stated in this document.
Definitions Summary Chart
Figure 1 illustrates the above definitions. Note that figures reflect expected values in a typical Class 3 estimate for
a high risk project.
Figure 1: Definitions summary chart

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1.2. Abbreviations
 AACEi: Association for the Advancement of Cost Engineering International
 ABEX: Abandonment Expenditure
 BOE: Basis Of Estimate
 BOOT: Build, Own, Operate and Transfer
 CAPEX: Capital Expenditure
 CEP: Cost Estimate Plan
 DRILLEX: Drilling Expenditure
 DSD: Decision Support Document
 EBS: Estimate Breakdown Structure
 EPC: Engineering, Procurement and Construction
 E&P: Exploration and Production
 FID: Final Investment Decision
 FMEA: Failure Mode and Effect Analysis
 FOB: Free On Board
 FOREX: Foreign Exchange cost due to currency fluctuation
 GIP: Gestión Integrada de Proyectos (Integrated Project Management)
 GPD: Global Projects Division
 HSSE: Health, Safety, Security and Environment
 IFRS: International Financial Reporting Standards
 IPA: Independent Project Analysis, Inc.
 IRR: Internal Rate of Return
 MSS: Market Survey System
 MTO: Material Take-Off
 OCTG: Oil Country Tubular Goods
 OPEX: Operating Expenditure
 P&ID: Process and Instrument Diagram
 PLEM: Pipe Line End Manifold
 PMT: Project Management Team
 TCM: Total Cost Management (Framework)
 VCDE: Visualization, Conceptualization, Definition and Execution
 WBS: Work Breakdown Structure
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2. Introduction
This document has been prepared in accordance with the Association for the Advancement of Cost Engineering’s
principles and when relevant the associated AACEi’s guides have been referenced. As AACEi’s Recommended
Practices are very general in nature and were prepared to provide support to a broad range of industries, some of
the original AACEi’s contents have been modified to meet common E&P practices.
Cost Estimating is the process of assembling a model to predict the costs of all resources needed to execute and
complete all project development activities, including CAPEX, OPEX and Abandonment costs.
Well construction (for development projects) costs, as part of the project CAPEX, are to be integrated in the total
CAPEX estimate, therefore, the criteria outlined in this document apply. However, well construction costs estimation
methodology is further developed in the specific procedure: “Well Construction Time and Cost Estimating (20-
00064PR)”.
The following items are excluded from the scope of this document:
 Exploration and Appraisal costs
 Project Finance Costs
 FOREX costs
Throughout the cost estimating process the Cost Estimating Engineer(s) is required to make assumptions around
the variables and key drivers that may have significant influence over the cost of the development.
Such variables and key drivers can be in one (or more) of the cost estimate components:
 Technical components - assumed Gas to Oil Ratio, number of production wells, expected throughput, etc.
 Execution Plan - schedule, government policy (e.g. local content), contracting and project management
strategy, etc.
 Cost of equipment, materials and hardware rates, labor productivity, and cost of mobilization of drilling and
facility installation hardware, etc.
The methods of preparing Cost Estimates vary as the scope definition of the project increases. In the earliest stages,
simple ratios to existing similar projects can provide an adequate estimate, providing that a correct assessment of
risk is made and appropriate contingency is added. Later, as definition of the project improves, cost estimating
methods get more detail, and more accurate. For more detail see Appendix II Cost Estimating methods and
Appendix III Specific cost estimates.
Cost estimating involves developing an assessment of the likely quantitative results as well as identifying and
considering various costing alternatives. Additionally the cost estimating process must consider whether the cost of
additional design work will offset potential savings.
The outputs of cost estimating are used primarily as input for budgeting, cost or value analysis, financial investment
decision making and cost control.
The ability to produce reliable Cost Estimates from the earliest stages is an essential part of good project
performance. To have confidence in the future success of new developments, all project stakeholders must also
have confidence in all stages of the cost estimating process and hence in the Cost Estimates produced.
The development of a proper cost estimate requires: access to data and documentation, well-trained and
experienced cost estimating engineers, the identification of a range of confidence levels and adequate contingency
and management reserves.
This document has been developed to assist the Cost Estimating Engineer(s) in performing cost estimating, with the
following objectives:
 To provide standard methodologies to perform Cost Estimates aligned within the GIP© process.
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 To provide a standard set of definitions and terminology governing the preparation of Cost Estimates.
 To improve the uncertainty management, consistency and accuracy of all Cost Estimates, by defining
common methods and approaches for preparing Cost Estimates.
 To provide a common understanding of the different cost estimate classifications, the stage in a project
at which each is to be produced, the basis for the estimate, and their associated typical accuracy and
contingency levels.
 To provide a standard framework for presenting estimates that will enable projects to be evaluated in a
uniform manner.
 To provide the basis for upgrading a cost estimate as a project progresses through the value funnel to
ensure that cost comparisons and reconciliations can easily be made.
 To provide assurance to Repsol Management that the cost estimate methodology employed by all
projects provides reliable data to support the decision making process and project sanction.
3. Project Cost Estimates through the Asset Life cycle

This chapter outlines the different Cost Estimates required for Develoment and Decomissioning projects during the
Asset life cycle, since the beginning of the Exploration and Appraisal projects up to the end of the Development and
Decommissioning projects.
As the project matures from the screening estimates performed during the earlier phases, the level of detail and
accuracy of the estimates will increase. At the end of the Definition phase of the Development project, when a single
concept is usually taken forward for Final Investment Decision, the estimate will be of a quality that will become the
Project Control Budget used during Execution for monitoring and controlling project performance, and for the
analysis of upward and downward cost deviations to the Approved Budget.
It is critical in the preparation of all Cost Estimates that the total Asset Life Cycle costs are evaluated to ensure that
the correct balance between initial capital expenditures (CAPEX) and prudent operating costs (OPEX) are reflected.
The associated costs of abandonment of the facilities and wells at the completion of the asset life cycle (ABEX) must
also be incorporated into the overall project cost estimate.
Figure 2 illustrates the overall VCDE process for upstream developments and the sequencing of the different project
phases and their associated Gates. Prior to each of the Gates a cost and schedule evaluation has to be performed.
Figure 2. VCDE Process for E&P Projects

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3.1. Exploration and Appraisal projects

As can be appreciated in Figure 2, the Visualization phase of Development Projects overlaps with the Exploration
and Appraissal stages.
During these early stages of the asset life cycle, Class 5 estimates will be prepared for one, or a range of cases,
being evaluated. The purpose of these estimates is to support the economic evaluations that demonstrate that there
is a viable case for field development.
Although cost estimate classes are further explained in an specific chapter in this document, it can be remarked that
these estimates will usually be parametric in nature, relying upon benchmarks from analogue projects and cost data
from cost estimating softwares. However where actual historical data related to similar developments is available it
should be utilized.
3.2. Visualization Phase

As shown in Figure 2, at the end of the execution of the Appraisal Project, the Development Project goes from
Visualization into Conceptualization, passing through Gate 1.
This gate requires being supported by Class 5 (or better) estimates. Some characteristics of these estimates are
outlined in the previous chapter and more detail is provided in an specific chapter in this document (see Chapter 4).
3.3. Conceptualization Phase

Conceptualization Phase includes two stages: Concept Selection and Concept Maturity.
Concept Selection
Following initiation of the Conceptualization phase the project team will prepare Cost Estimates for all concepts and
scenarios which are under consideration and documented in the Concept Selection Matrix (GIP deliverable, see the
GIP site in Know-Howse portal in Repsolnet for detail).
During the initial Concept Selection phase, Cost Estimates will be developed in a similar manner as the Visualization
phase Cost Estimates where some concepts are screened and eliminated due to technical, commercial or economic
considerations. The quality of cost estimations at this stage must be sufficient to allow the comparison of the
different options, being critical to keep homogeneity in the evaluation of every concept. The results of these
evaluations will be compiled in the Concept Selection Matrix.
At the end of the Concept Selection it is intended to take one case forward to the Concept Maturity stage. However,
in certain circumstances more than one reference case may be carried forward to the Concept Maturity stage for
technical, strategic or commercial considerations.
Concept Maturity
During Concept Maturity the selected concept(s) will be further matured with the objective of taking a single option
forward to the Definition phase. To support decision making at Gate 2, diferent Cost Estimates have to be prepared,
as shown in Table 1, including:
 Actual expenditures in previous phases, at least during Conceptualization.
 Class 3 or better for definition phase costs, which will usually become the budget during definition.
 Class 4 (or better) CAPEX of the matured concept. At least for the first execution phases.
 Class 4 OPEX
 Class 5 ABEX
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DEFINITION EXECUTION EXECUTION

PREVIOUS CONCEPTUALIZATION
PHASE CAPEX PHASE 1 CAPEX PHASE N CAPEX OPEX ABEX
PHASES COSTS PHASE COSTS
COSTS COSTS COSTS
ACTUAL CURRENT CLASS 3 CLASS 4 CLASS 5 CLASS 4 CLASS 5

GATE 2
EXPENDITURES BUDGET OR BETTER OR BETTER OR BETTER OR BETTER OR BETTER
Table 1. Gate 2 Development Projects Cost estimates

The project team will also prepare the Cost Expenditures curves, in Real Term, using the above referred Cost
Estimates and the project schedule.
To ensure the timing and quality of these estimates, a Cost Estimate Plan for conceptualization phase is prepared.
The Cost Estimate Plan will establish the strategy and the timeline for the estimating process including the timing of
design freezes, the identification of critical data and the identification of long lead items and their management
approach. Another important point of the Cost Estimate Plan is to define whether an external contractor involvement
is required or not. When it is decided to get involvement of contractors including cost estimating activities in their
scope of services, it is critical to clearly stablish, since the beginning of the contracting process, what the cost
estimating services Technical Requirements are.
Cost Estimate Plan is further explained in Chapter 10 of this document.
All Cost Estimates have to be fully documented and a Basis of Estimate document with all relevant information has
to be included.
Basis of Estimate and Cost Estimate document contents and templates are further explained in Chapters 5 and 11
of this document.
Note that, at the end of this phase, the project is subject of a risk analysis governed by the “Project Risk
Management (20-00099PR)” procedure. As a consequence, some changes could appear in scope, strategy, in the
basis of estimate or inclusion of the mitigation plans in the scope of the project. Therefore, after the risk analysis the
cost estimate could have to be reviewed to incorporate the potential changes.
3.4. Definition Phase

During the Definition phase the project team will upgrade the project definition and, using more and better
information, will improve the quality of the cost estimate. As shown in Table 2, to support decision making at Gate 3,
diferent Cost Estimates have to be prepared including:
 Actual expenditures in previous phases, at least during Conceptualization and Definition phases.
 Class 3 (or better) CAPEX for the Execution phase of the defined concept. This estimate will typically
support the budget of the next stage and has to be prepared in both, Real Term and Nominal.
 Class 4 (or better) CAPEX for future phases, in the case of multi project scenarios.
 Class 3 OPEX
 Class 5 ABEX
DEFINITION EXECUTION EXECUTION

PREVIOUS CONCEPTUALIZATION
PHASE CAPEX PHASE 1 CAPEX PHASE N CAPEX OPEX ABEX
PHASES COSTS PHASE COSTS
COSTS COSTS COSTS
ACTUAL ACTUAL CURRENT CLASS 3 CLASS 5 CLASS 3 CLASS 5

GATE 3
EXPENDITURES EXPENDITURES BUDGET OR BETTER OR BETTER OR BETTER OR BETTER
Table 2. Gate 3 Development Projects Cost estimates

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The project team will also prepare the Cost Expenditures curves, in Real Term, using the above referred Cost
Estimates and the project schedule.
Similarly than during Conceptualization, to ensure the timing and quality of the Class 3 (or better) Cost Estimates, a
Cost Estimate Plan for Definition phase has to be prepared. The Cost Estimate Plan will establish the strategy and
the timeline for the cost estimating process including the timing of design freezes and the identification and issue
date of critical data.
During Definition, a big part of the cost estimating process will be often performed by contractors. In these cases it is
critical to clearly stablish, since the beginning of the contracting process, what the cost estimating services Technical
Requirements are.
In many cases, during the Definition phase, long lead items or EPC Lump Sum contracts bids are requested. In this
cases, it is recommended to request these bids according to the standardized templates in Appendix I. This
requirement will result in an easier comparison and analysis of the bids during the evaluation process.
It is the responsibility of the Cost Estimating Engineer to compile the overall estimate. Along with soliciting, checking,
reviewing and compiling the technical elements from the various contractors and vendors, it will also be necessary to
collaborate with other internal disciplines to develop and compile the costs for:
 Owners Costs including PMT
 HSSE Costs
 Sub-surface Costs
 Drilling and Completion Costs
 Operating Costs
 Abandonment Costs
The overall Cost Estimate has to be fully documented and a Basis of Estimate document with all relevant information
has to be included.
As explained in the previous phase, if any change arise from the risk analysis, the cost estimates could be affected.
3.5. Execution Phase

At the end of the Definition Phase, when FID is usually taken, the cost estimate will support the approved budget
and will be used as Cost Baseline for project controls purposes during Execution.
This approved budget could involve some changes over what considered in the cost estimate. Some typical changes
could be, for example, including the results of negotiations for equipment and services that were performed during
the Definition Phase but not closed before DSD submittal or small changes in milestones dates. In these cases, the
Cost Estimating Engineer and the Scheduling and Control Engineer will work together in order to adapt the Cost
Estimate to the Cost Baseline and so setting a Control Baseline for the approved budget.
During Execution, the project Scheduling and Control Engineer is responsible for the maintenance of the Control
Baseline. As actual commitments are made the budget should be upgraded to include the Purchase Order/Contract
price along with the payment terms.
The project Scheduling and Control Engineer are also responsible for including all approved change orders into the
budget and providing the forecasted Final Cost at Completion.
4. Cost Estimate Classes

There are numerous characteristics that can be used to classify cost estimate types. Among the most significant of
these are:
 The maturity level of the project
 End usage of the estimate
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 Estimating methodology
 Effort and time needed to prepare the estimate
 The theoretical accuracy
According to these criteria, AACEI 17R-97 provides the following classification table.
Table 3. AACEI 17R-97 Cost Estimate Classification Matrix

It should be remarked that the Class of estimate, in Repsol E&P Development and Decommissioning projects, is
governed by the estimating methodology, while AACE 17R-97 considers the maturity level of project definition as the
primary charachteristic.
Of course, there is high correlation among all these characteristics. Furthermore, the applied methodology will
depend on the type of available information and so, in the level of project definition. However, taking preference on
the methodology as primary classification criteria, and preparing the Cost Estimates meeting the stated below two
principles, inconsistencies between the quality of information and quality of the cost estimate will be avoided. These
two principles are:
 Cost estimates will be developed according to the methodology that best suits the quality of available
information and the project needs, always prevailing deterministic over stochastic criteria.
 Cost estimates will be based upon all available relevant project information in its latest status at the moment
of issuing.
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Regarding methodology, Class 4 estimates are primarily stochastic being Class 2 primarily deterministic and Class 3
mixed.
Standardized templates to be applied in Class 4, Class 3 and better CAPEX estimates are provided in this document
in Chapter 5.
Table 4 shows the relationship between the GIP phases and the cost estimate classes and summarizes some of the
attributes of each class of estimate.
The expected accuracy and contingency ranges, as shown in Table 4, could also provide some guidance to assess
the cost estimate. Furthermore, considering that the range of accuracy strongly correlates with the level of project
definition, it can provide guidance to assess whether the progress is suitable for the cost estimate purpose.
In that sense, as a first approach, the achieved accuracy could be considered adequate for the purpose of the cost
estimation when the range falls within the specified limits. On the other hand, if the range of accuracy falls out of the
range, it would not imply that the cost estimate is weak, but maybe that the level of uncertainty of the project remains
higher than desired.
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Table 4. Relation between the GIP phases and the Cost Estimate Classes and Characteristics
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Tables 5, 6 and 7 show data and information that should be available when Class 5, 4 and 3 are requested,
according to GIP requirements.
General Data Estimate Classification
Class 5 Class 4 Class 3 Class 2 Class 1
GIP Requirements In Place In Place In Place In Place In Place
Project Scope Description General Preliminary Defined Defined Defined
Facility Production Capacities Assumed Preliminary Defined Defined Defined
Number / grouping / type of wells Assumed Preliminary Defined Defined Defined
Facility Location General Approximate Specific Specific Specific
Soils, Hydrology and terrain Assumed Assumed Preliminary Defined Defined
Environmental Data (wind/temperature
Assumed Assumed Preliminary Defined Defined
range )
Dimensions & location of field Assumed Preliminary Defined Defined Defined
Project Management Plan (Refer to Project Class 4 for selected
N/R Class 3 Defined Defined
Management Plan Guideline) option
Project Schedule (Refer to GIP Project
Scheduling Guideline)
Defined for Defined for
Owner PMT resourcing and workforce plan CONCEPTUALIZATION DEFINITION Phase
Defined Defined Defined
(Refer to GIP Resources Guideline) Phase Outlined for further
N/R for further phases phases
Contracting Strategy Assumed Preliminary Defined Defined Defined
Work Breakdown Structure (Refer to GIP
N/R Preliminary / Level 2 Defined Defined Defined
WBS Guideline)
Project Code of Accounts N/R Preliminar Defined Defined Defined
Escalation Analysis N/R Preliminary Defined Defined Defined
Community Relations Studies N/R Preliminary Detailed Detailed Detailed
Land Acquisition N/R LOI Complete Complete Complete
Permits Plan Preliminary Defined Defined Defined Defined
Risk & Opportunity Register Preliminary Defined Defined Defined Defined
Could be required for
Formal Vendor Quotations N/R Critical Items Defined Defined
Long Lead Items
Budget Quotations N/R Critical Ítems - - -
Geotechnical Studies N/R Assumed Defined Defined Defined
Security Plan Preliminary Detailed Detailed Detailed Detailed
HSE Plan Preliminary Detailed Detailed Detailed Detailed
Labor Services Cost & Productivity rates N/R Assumed Preliminary Defined Defined
Logistics Plan Assumed Preliminary Detailed Detailed Detailed
Insurance and taxes N/R Assumed Preliminary Defined Defined
Financing Data N/R Assumed Defined Defined Defined
N/R = Not required for this class of
estimate
LOI = Letter of intent
Table 5 Estimate typical inputs. General Data

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General Engineering inputs Estimate Classification

Basis of Design Draft Preliminary Near Complete Approved Approved
Block Flow Diagrams N/R Near Complete Approved Approved Approved
Utility Flow Diagrams (UFD’s) N/R Preliminary Approved Approved Approved
Process Flow Diagrams (PFD’s) N/R Preliminary Approved Approved Approved
Piping & Instrument Diagrams (P&ID’s) N/R N/R Issued for Design Approved Approved
Plant Plot Plans N/R Preliminary Issued for Design Approved Approved
Gathering System and Export System
Initiated Preliminary Approved Approved Approved
Layouts
Equipment Arrangement Drawings N/R Preliminary Approved Approved Approved
Processing Facilities Civil / Structural
N/R N/R Preliminary Near Complete Approved
discipline drawings
Roads, Landscaping N/R Preliminary Near Complete Approved Approved
Heat & Material Balances N/R Preliminary Approved Approved Approved
Safety drawings N/R N/R Started Near Complete Approved
Single line diagrams N/R N/R Near Complete Approved Approved
Long Leads Listing Draft Near Complete Approved Approved Approved
Mechanical / HVAC drawings N/R N/R N/R Near Complete Approved
Electrical drawings N/R N/R N/R Near Complete Approved
Instrument / Telecoms / Controls drawings N/R N/R N/R Near Complete Approved
Preliminary
Spare parts listing N/R Philosophy Near Complete Approved
Defined for LLI
Equipment List N/R Preliminary Approved Approved Approved
Major Equipment sizes and material N/R Preliminary Approved Approved Approved
Material Take-offs (MTO) N/R N/R Preliminary Near Complete Approved
Flow Assurance Studies Assumed Assesed Approved Approved Approved
Site and Pipeline Routing Surveys N/R Iniciated Near Complete Near Complete Detailed
Environmental Impact Assessments
N/R Started Started Detailed Detailed
Studies
Constructability Study N/R N/R Preliminary Detailed Detailed
N/R. Could be
Site Preparation Study N/R required depending Defined Defined Defined
on schedule
Line List N/R N/R Preliminary Defined Defined
estimate
Table 6 Estimate typical inputs. General Engineering inputs

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Offshore Specific Inputs Estimate Classification

Meteorological data Assumed Assumed Preliminary Defined Defined
Marine Data Assumed Indicative Preliminary Defined Defined
(tidal currents, Sea states, 1,000yr wave
etc)
Bathymetry Assumed Assumed Preliminary Defined Defined
Seabed Survey, Soil Sampling / Testing Assumed Assumed Preliminary Defined Defined
Type of Construction vessels and
Assumed Assumed Market Survey Near Complete Contracted
availability
Hook-up Accommodation and availability Assumed Assumed Market Survey Near Complete Contracted
Construction Supply base (location,
Assumed Market Survey Market Survey Near Complete Contracted
cranage etc)
Operations Supply base (location, cranage
Assumed Market Survey Market Survey Near Complete Contracted
etc)
Tank Testing N/R N/R N/R Complete Approved
Donor Vessel Survey (for Conversions) N/R Market Survey Near Complete Detailed Approved
Vessel Lightship N/R N/R N/R Design Data Complete
estimate
Table 7. Estimate typical inputs. Offshore specific inputs
5. CAPEX Estimate Breakdown Structure. Cost Estimate Templates

This chapter provides a standardized breakdown structure to be followed for CAPEX estimates in Repsol E&P
Development projects. This structure is called herein after Estimate Breakdown Structure (EBS).
Although its use is recommended along the whole project life cycle, it is mandatory for Class 4 and better estimates.
Class 5 estimates, when supporting decisions at Gate 1 - at the end of Visualization -, will follow this standardized
EBS as much as possible.
Any exception or customization to what stated in this chapter will be clearly expressed in the Cost Estimate Plan and
in the Basis of Estimate.
Considering that different components in the Work Breakdown Structure (WBS) could have and require different cost
estimate structures, different structures have been defined. These structures are complemented by a description.
WBS definition and requirements can be found at the GIP Work Breakdown Structure (WBS) Guideline (see GIP site
at the Know-Howse portal in Repsolnet).
Appendix I A provides the relationship between different WBS components and their associated templates (Table 1).
It can be noticed that all the templates are the same at certain level - called Level 1 – and, therefore, the total figures
of the project can be summarized at that level. It can also be noted that they provide not only standardized splitting
of the project costs, but also key quantities and man-hours. Table 2 shows the way to summarize the estimate
figures at Level 1. Table 3 shows the Estimate Breakdown Structure at Level 2.
For drilling costs, the “Well Construction Time and Cost Estimating (20-00064PR)” procedure provides an
standardized cost estimate breakdown structure in its Appendix II. As stated in that procedure, it is applicable to all
wells drilled in Repsol.
Table 4 shows the relationship between every cost account included in the 20-00064PR procedure and template
EBSDRI 1, which is the template to summarize drilling costs. This correlation between both structures allows to
ensure the completeness of the cost estimate and keeps the integrity of the drilling costs as determined by the “Well
Construction Time and Cost Estimating (20-00064PR)” Procedure.
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6
Indicated cost figures will be expressed in millions of US dollars (USDx10 ) in Real Term (i.e. escalation excluded).
Some exceptions could typically appear in Class 3 estimates when supported by Vendor Quotations in Nominal
USD.
Appendix I B includes a description of all accounts considered in the EBS.
These templates and the description can also be found in the “GIP Templates & Tools” area in GIP Sharepoint at
the Know Howse portal in intranet.
6. OPEX
Operating Costs are the expenses incurred during the normal operation and maintenance of an asset, in order to
keep it functioning throughout its life-cycle.
OPEX will fall into three main categories:
 Facilities and Wells Operations and Maintenance; including the following:
o Labor.
o Consumables.
o Inspections.
o Camp maintenance.
o Air, land and sea transportation.
o Infrastructure upkeep.
o Workover and well maintenance.
o Logistics.
o Insurance.
 General and Administration: these are off-site/Home office costs incurred for Financial, Legal and
Administrative support to the operations.
 Leases and Rents
During Visualization and Concept Selection it is usual to calculate these costs using commercial cost estimating
softwares. However, it is always recommended to get support from internal disciplines such as Procurement and
Contracting, Sub-surface, HSE, Legal, Financial and Fiscal, Human Resources, Insurance, Logistics and
Operations.
During the Conceptualization and Definition Phases these operational costs will be detailed out by the Cost
Estimating Engineer in collaboration with representatives of other internal disciplines, as those referred above, and
taking into account all the relevant information.
6.1. Leases and Rents

As a general rule, when a project leases or rents land, facilities or any other items, these Leased/Rented elements
are recommended to be handled in the following way in order to categorize them appropriately as CAPEX or OPEX
costs:
 Treatment to include as CAPEX or OPEX should be first and foremost decided upon as determined by
accounting practices, specifically according to International Financial Reporting Standards (IFRS).
 If not included in IFRS, then the following rules will apply:
o Cost of land lease should be considered as OPEX.
o The lease cost of major leased facilities, for example a FPSO, should be rolled up and report as
OPEX.
o The cost of facilities that are transitory in nature (i.e. they may be changed out at some point in time
as in the case of tankers, supply vessels, rented early production facilities, etc.) shall be estimated
as part of OPEX.
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When a facility that is expected to be leased has to be specifically manufactured or constructed by the contractor
(e.g. a facility subject of a BOOT contract) the contractor EPC costs of building that facility, which will be considered
as CAPEX by the contractor, have to be provided additionally to the lease costs (OPEX for Repsol E&P) in order to
allow a proper evaluation of different quotations and the competitiveness of the leasing alternative.
7. ABEX
All estimates are required to provide a cost for abandonment of the facilities and wells at the end of project life to
satisfy company and host government statutory requirements.
Abandonment cost is, simply stated, the cost of deconstruction and preservation of the equipment and materials,
and the re-instatement of the site to, as near as practical, its initial state including its original vegetation. All facilities
and infrastructure will be carefully dismantled to avoid any possibility of accidental pollution.
Depending on the geographic location, and whether the main production facility was constructed offshore or
onshore, the costs will vary dramatically.
Typically the Cost Estimating Engineer is required to break the abandonment costs into two distinct categories:
 Onshore Abandonment relates to the permanent cessation of the facility and infrastructure and the
abandonment estimate will include:
o Wells plugging and abandonment.
o Dismantlement of production facilities and removal from site.
o Dismantlement of inter-connecting piping systems.
o Dismantlement and abandonment of pipeline gathering systems.
o Soil and water remediation.
o Re-instatement of the site to, as near as practical, its initial state including its original vegetation.
o Note that some facilities (e.g., water tanks) and other improvements (e.g., roads) may be permitted
to remain at the site for future use.
 Offshore Abandonment will include:
o Wells plugging and abandonment.
o Removal and preservation/disposal of topsides processing equipment.
o Removal and disposal of fixed and floating structures.
o Removal and disposal of submarine infrastructure.
o Surface remediation.
It can be noticed that, every Development project at Gates 2 and 3 is always required to provide a Class 5 cost for
decommissioning (ABEX).
It can also be remarked that, according to the “E&P Asset Decommisioning (20-00091PR)” procedure,
decommissioning projects will follow their own VCDE process with their respective Gates (1, 2 and 3) and cost
estimates (Class 5, 4 and 3).
8. Cost Expenditure Curves

The cost expenditure curves - or tables - are required to support economic analysis. They can be also used for
annual expenditures forecasting.
The Project Team will prepare the cost expenditure curves in Real Term to support economic analysis at decision
gates.
They will be always in accordance with the project schedule and the project Cost Estimates (CAPEX, OPEX and
ABEX) and it is recommended splitting these curves by project phase and WBS area at Level 1.
Depending on the class of estimate and schedule; they can be developed in different ways.
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As a first approach, typical “S” curves for the main estimate breakdown structure accounts (Level 1 according to
templates provided on Chapter 5 could be utilized).
For more detailed Cost Estimates, firm commitments (equipment or material deliveries, etc.) provide a more
accurate way to build the cost expenditure curve.
9. Escalation and Updating

See Definitions Section for: “Escalation”, “Cost Estimate Real Term”, “Cost Estimate Nominal” and “Updating”.
For Class 5 and Class 4 Cost Estimates, data usually come from past projects or existing databases that must be
updated bringing them from the past to the baseline date to reach the Cost Estimate in Real Term. In these cases,
the project team will update costs coming from the past accoding to the E&P Capital Expenditure Escalation and
Updating document (see Appendix V Reference Documentation) and will clearly state the considered updating
factors in the Basis of Estimate.
For more detailed Cost Estimates, Class 3 and better, most of the costs could be based on firm quotations, whose
selling price often includes escalation costs, hence, as far as the Cost Estimating Engineer works within the valid
range of these quotation there is no need for updating.
For economic analysis and budgeting purposes the Cost Estimate in Real Term would be suitable if the project were
executed immediately. However, as E&P projects are usually executed in multi-year periods, a forecast of escalation
costs is required. Therefore, all projects must incorporate the concept of cost escalation into their cost estimates in
order to present realistic figures and avoid cost estimates that are not achievable, resulting in funds directed to
projects that may not provide the best investment and returns within the global portfolio. As stated in its definition, it
is important to note that escalation is different than inflation and is a more realistic indicator for E&P capital cost
estimating purposes.
In order to have proper support for escalation estimates, it is required to have:
 An appropriate project schedule and CAPEX estimate in Real Term.
 A good understanding of the different sources of supply of services and goods for the project. Being this
usually covered by assumptions in Visualization and Conceptualization and established by the project
schedule and strategy during Definition.
 A good understanding, or at least a proper support, of the escalation factors to be used for every
affected market.
In order to properly forecast the escalation factors in the E&P services and goods market, there are three key
variables that need to be considered:
 Historical behavior of the market and future trends need to be understood in order to evaluate the suppliers’
potential response during periods where the market has a similar behavior as historically.
 Demand Factors. For example the number, type and location of projects that E&P Operators are currently
planned, sanctioned, or in progress.
 Supply Factors. Market players, level of competition, market share, specialization of services, order
backlogs, new technologies, etc.
Cost escalation is very sensitive on market or economic conditions and its calculation can be challenging when
dealing with unstable countries and long term projects as the inherent unpredictability of market behavious,
countries inflation and currency fluctuation is even higher.
The project team will estimate escalation costs according to the E&P Capital Expenditure Escalation and Updating
document and will clearly state the escalation basis in the Basis of Estimate.
The project team will estimate escalation costs considering two scenarios for escalation rates:
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Scenario 1 - Corporation CAPEX and OPEX escalation factors and inflation rates provided by Repsol E&P
(Planning and Control Direction).
Scenario 2 - Project CAPEX escalation factors, referred to more specific indexes such as those listed in
Appendix II or those referred in the E&P Capital Expenditure Escalation and Updating document (see Appendix
V Reference Documentation) and specific project conditions (local content, specific market conditions, etc.)
Scenario 1 – using Corporation Factors – is more simple and global, as it uses the same criteria for all projects in
Repsol E&P portfolio, but Corporation factors are calculated for average projects which actually do not exist.
Furthermore, it involves a risk of underestimating the budget of projects in Execution phase and leading to frustration
when the cost baselines are not achievable. On the other hand, projects could be overestimated and so, leading to a
lower cost effectiveness.
Scenario 2 is, theoretically, more accurate, as it uses factors provided by specialized companies and considers
specific project conditions. Additionally, the project team is committed to the cost. On the other hand, using Scenario
2 is not easy to control consistency in the Repsol E&P overall portfolio.
For forecasts beyond 4 years it is recommended referring always to corporation escalation rates.
The base case will be Scenario 1, which will be the base for project budgeting as well. Scenario 2, being always
properly supported and documented, could be considered for budgeting purposes when big differences between
both scenarios are found.
For illustration purposes, considering a multiphase development project at Gate 3 (FID), the Cost Estimates would
be prepared in Real Term or Nominal according to Table 8:
CAPEX
Phase 1 Phase 2 Phase 3
V C D E V C D E C D ABEX
V E
OPEX
Typical Case (Multiphase Project @ FID)
CAPEX OPEX BUDGET
𝐶𝑙𝑎𝑠𝑠 𝐼𝐼𝐼 +
𝑅𝑒𝑎𝑙 Term & 𝐶𝑙𝑎𝑠𝑠 𝐼𝐼𝐼 +
Phase 1 𝑅𝑒𝑎𝑙 𝑇𝑒𝑟𝑚
Nominal Scenario 1 & 𝑵𝒐𝒎𝒊𝒏𝒂𝒍 Scenario 1
Nominal Scenario 2
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Phase 2 / 𝐶𝑙𝑎𝑠𝑠 𝑉 +
Phase 3 𝑅𝑒𝑎𝑙 𝑇𝑒𝑟𝑚
𝑅𝑒𝑎𝑙 Term Typically Not included in Budget
𝐶𝑙𝑎𝑠𝑠 𝑉
ABEX
𝑅𝑒𝑎𝑙 𝑇𝑒𝑟𝑚
Table 8. Multiphase project estimate characteristics at FID
10. Cost Estimate Plan

At the beginning of Conceptualization and Definition phases, the project team will prepare a Cost Estimate Plan
(CEP).
Considering that the CEP is one of the subsidiary plans typically included in the Project Management Plan (PMP),
and that the PMP is required by GIP at Gate 2, it can be understood that when starting Definition phase a CEP has
to be available. However, this existing plan should be reviewed and updated.
The object of the CEP is mainly to explain how the project foresees to develop the required Cost Estimates. In this
sense, Cost Estimates shall always comply with the following general requirements:
 Will be based upon all available relevant project information (of any kind) in its latest status at the moment of
issuing.
The ‘Cost Estimate Classes’ chapter includes a table, mainly focused on CAPEX for facilities, listing Repsol
typical relevant inputs for each Cost Estimate class.
 Will be developed according to the methodology that best suits the quality of available information and the
project needs, always prevailing deterministic over stochastic criteria.
 Will be summarized accordingly with the standardized WBS and Estimate Break-down Structure and
supported with appropriate Basis of Estimate as described in Chapter 11.
The Cost Estimate Plan shall contain at least the following information:
 General Introduction: in this section a brief description of the whole project will be accomplished. Topics
such as project background and current stage of the project, scope of work, project location and project total
duration will be dealt with.
 Estimating Methodology. The expected methodology for estimating the costs of each WBS component and
EBS account will be explained. The following topics will be clearly explained:
o If it is foreseen requesting quotations to vendors, then it shall be clearly specified.
o Methodology for accomplishing material take-offs, if applicable. Expected allowances to be applied
over material take-offs, if applicable.
o Baseline date and source of the prices to be used in the estimate.
o Methodology to calculate and apply location factors, if applicable.
o Methodology to be used to estimate Contingency.
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o Methodology to estimate escalation costs, if applicable.

o Exceptions, if any, to the standardized templates.
 Estimating Class and Expected Accuracy: it shall be clearly stated in the CEP the expected Estimate Class,
according to the expected methodology and the expected available data when preparing the Cost Estimate,
and consistently with GIP criteria as stated in ‘Cost Estimate Classes’ chapter.
 Reference Estimating Documents: in the CEP, it will be listed any relevant information on which the Estimate
will be based (e.g. engineering documents, vendor quotations, specific studies, etc.).
 Estimate Schedule: It will be stated in the Cost Estimate Plan the dates of issue of the main inputs
necessary for the development of the estimate and the expected dates of the estimate milestones. These
dates shall be consistent with the general project schedule.
 Roles & Responsibilities: stating who is responsible to do each piece of work and specifically when it is
expected to subcontract cost estimating services to an external company.
11. Cost Estimate document contents

11.1. Basis of Estimate
As defined in AACEI Recommended Practice 10S-90, the Basis of Estimate (BOE) is a written documentation that
describes how an estimate was developed and defines the information used in support of development.
AACEi Recommended Practice 34R-05 (“Basis of Estimate”) provides guidance for the structure and content of a
cost basis of estimate. Based on this practice any person with enough Oil&Gas cost engineering experience should
be able to understand and assess the estimate just going through the BOE, independently of any other supporting
documentation, and a good BOE will:
 Summarize the overall project scope.
 Communicate the estimator’s knowledge of the project by demonstrating an understanding of scope and
schedule as it relates to cost.
 Alert the project team to potential cost risks and opportunities.
 Provide a record of key communications made during estimate preparation.
 Provide a record of all documents used to prepare the estimate.
 Act as a source of support during dispute resolutions.
 Establish the initial baseline for scope, quantities and cost for use in cost trending throughout the project.
 Provide the historical relationships between estimates throughout the project lifecycle.
 Facilitate the review and validation of the cost estimate.
There are many factors that can affect the level of detail of the BOE, some of them are: project investment, project
complexity, new technologies, contracting strategy, etc.
Although the amount of information to be included into the BOE is something that must be decided for every single
project, the BOE has always to cover the following topics:
 Project description. Background locations and scope of work.
 Background and Cost Estimate purpose.
 Methodology for Facilities CAPEX (including DRILLEX), OPEX and Abandonment Costs estimation.
 Cost Estimate Classification and Accuracy.
 Currency of issue and applied Currency Exchange Rates.
 Estimate Baseline date.
 Brief Summary of main figures. Stating clearly Committed and Sunk Costs.
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 Reconciliation with previous estimates (in the case of Cost estimates for Definition Phase), providing an
overview of the major differences between the current and the last published estimates.
 Currency Basket and CAPEX split by main locations, (e.g. local onsite vs offsite foreign costs).
 Design Basis and supporting documentation List with number of document, date and revision.
 Planning and Strategy Basis. Project schedule milestones relevant to the estimate.
 Description of applied Methodology. Stating and quantifying clearly the use of allowances and stating all
relevant assumptions.
 List of Allowances, assumptions, exclusions and exceptions.
 Contingency
 Escalation Basis. Stating the applied escalation factors.
 OPEX Basis.
 Abandonment Cost Basis.
 Summary of Risk analysis results and reference to Risk analysis documents. Note that Risk
Management requirements are governed by the “Project Risk Management (20-00099PR)” procedure.
11.2. Cost Estimate document contents

The Cost Estimate is presented in a document structured in three different sections:
Basis of Estimate: This section compiles the Basis of Estimate as previously described.
Estimate Templates: This section compiles the estimate figures (costs, man-hours and key quantities), summarized
using the standardized templates presented in this document (See Chapter 5). It also includes the Cost
Expenditures curves and tables.
Supporting Documentation: The Cost Estimate includes copy of all supporting documentation relevant which had
been used in the development of the estimate and which had not been issued officially as part of the Project
documentation.
12. Quality Control

To ensure the quality of a cost estimate, and its compliance with Repsol E&P regulatory requirements, a two steps -
review and validation- process is required. AACEI RP 31R-03 Reviewing, validating and documenting the estimate
provides guidance on this topic.
The review step is typically qualitative in nature and focused on ensuring that the estimate meets the following
requirements:
 Compliance with this “Project cost estimating (20-00098PR)” procedure and in particular with the cost
estimate plan.
 Consistency among project scope and strategy, Basis of Estimate and estimate figures.
 Cost estimate completeness, in terms of scope and documentation.
 Estimate structure, WBS and EBS.
The validation step is typically quantitative in nature, and focused on ensuring that the estimate is competitive and
that it meets project and business expectations and targets. This step deals with questions such as:
 Is the all-in labor rate reasonable and aligned with local market rates and productivities?
 Is this price competitive for carbon steel vessels?
 Does the piping weight figured in the cost estimate match with the material take off in the power generation
area?
 Is this cost per tonne reasonable for a jacket structure EPC and HUC
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 Is this cost per MW reasonable for a Power Generation section like this?
 Is the cost estimate classification according with this procedure, and its associated contingency and
accuracy?
Answering most of these questions involves using metrics different from those used in the estimate preparation.
These metrics could come from different sources:
 The cost estimating engineer own experience
 The company experience
 Commercial or available databases compiling the industry experience
Although both steps, review and validation, are often carried out together, IPA study “Estimate Validation Best
Practices” presented at IBC CEC 2012 arised that the best results are achieved when these steps are carried out
independently and by cost engineers external to the core project team.
In Repsol E&P projects this cost estimate Quality Control is followed at two levels:
 Project level, applicable for every project, being responsibility of the Cost Estimating Engineer
 Company level, applicable to those projects that are required to follow “QA&QC Process for E&P Projects
and Assets (20-0003PR)”.
In some cases External Benchmarking is required for additional outsourced quality control.
This process could somehow be iterative being its findings trigger of modifications in the cost estimate figures, in the
Basis of Estimate document or even in the project scope, strategy or supporting technical documentation.
13. Roles and Responsibilities

Cost estimates are the result of the work of a multidisciplinary team including different disciplines, as for example:
subsurface, reservoir, drilling, facilities, legal, fiscal, commercial, contracts, strategy, etc., which provide the required
inputs to the Cost estimating Engineer(s). Although the Cost Estimating Engineer will have final responsibility for
compiling the final estimate documents, it will be a collaborative effort involving multiple technical and non-technical
disciplines.
Cost Estimating Engineers require good organizational skills, in order to put together technical and cost data coming
from different teams, integrate it and present it in a meaningful way. Engineering and mathematical skills are also
required to fully understand the quality of the data available. Communication skills are also important for clarifying
the technical aspects and the associated uncertainties of the project with the project technical specialists.
AACEi Recommended Practice 11R-88 Required skills and knowledge of cost engineering, provides a good
overview of cost estimating discipline.
Regarding Cost Estimation the following responsibilities rely on the Project Manager, Cost Estimating Engineer(s)
and Scheduling and Control Engineer:
Project Manager
 Providing Project Scope of Work and Execution strategy.
 Approving Cost Estimating Plan.
 Ensuring that Cost Estimate Technical Requirements are met by contractors.
 Providing engineering and market data and information according with project requirements and
execution strategy.
 Providing support to the Cost Estimating Engineer in the Cost Estimating plan implementation.
 Supporting the Cost Estimating Engineer in the review of material take offs, engineering and
construction documents and any vendor or contractor construction quotations that had been used to
support deterministic estimates.
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 Approving the Cost Estimate.

Cost Estimating Engineer (Project Services)
 Developing the cost estimate structure.
 Coordination and preparation of the Cost Estimate Plan.
 Providing Cost Estimate Technical Requirements and supporting the Project Manager when contracting
cost estimating services. Reviewing and validating the quality of the estimates provided by these
contractors.
 Implementation of the Cost Estimate Plan, with the Project Manager support.
 Compiling Cost Estimates, including CAPEX, DRILLEX, OPEX and Abandonment, and technical
information from all the associated disciplines and organizations and ensuring the consistency of
methods, data and documentation.
 Ensuring the completeness and competitiveness of the cost estimates, through a reviewing and
validation process.
 Estimating contingencies up to P50 and accuracy (P10-P90) over the Base Estimate.
 Preparing the cost expenditure curves.
 Estimating escalation for budgeting purposes in two scenarios: (1) applying Corporation Escalation
factors and (2) Project specific escalation factors.
 Compiling actual expenditures, commitments and sunk costs.
 Preparing the Basis of Estimate.
 Preparing presentations and articulating the estimate to all stake-holders, including the Project Manager,
and investment decision makers.
 Assisting the Scheduling and Control engineer to implement the Cost Estimate to the Cost Baseline.
If this role is not present in the project team, the Project Services Manager assumes these responsibilities as he/she
is ultimately accountable for them.
Scheduling and Control Engineer (Project Services)

 Implementing the Cost Estimate to the Cost Baseline and so, setting a Control Baseline for the approved
budget.
 Maintaining the Control Baseline (schedule and cost) including approved change orders into the budget
and controlling actual commitments, expenditures, physical progress and estimated time and cost to
complete.
If this role is not present in the project team, the Project Services Manager assumes these responsibilities as he/she
is ultimately accountable for them.
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14. Appendices
Appendix I. Estimate Summary Template and Description
Appendix II. Cost Estimating methods
Appendix III. Specific Cost Estimates
Appendix IV. Cost Estimating Process for detailed estimates
Appendix V. Reference Documentation
Appendix I. Estimate Summary Template and Description

A) Estimate Summary Template
See Excel Attached.
B) Estimate Summary Description

See Pdf Attached.
Appendix II. Cost Estimating methods

Depending on the stage of the project and on the available time and resources, different cost estimating methods
can be utilized.
Methods can be, typically, associated to specific stages of a project; for example, detailed methods can only be
utilized when more detailed engineering information is prepared, as large amounts of data are required. And scaling
and other ratios methods are used at Visualization, when, typically, very limited information and time are available.
The methods shown in this section can also be utilized for quality control purposes, as they allow comparing
estimates prepared by third parties against typical values.
The theoretical approach of these methods can be utilized for cost estimating of different components; even if they
are developed mainly for processing facilities.
A) Ratios Methods
This method utilizes ratios (generally based on weight, production capacity or other characteristic parameters) that
are generated from cost data bases. These methods can be utilized when limited time and/or information is available
for preliminary cost estimating purposes. These ratios methods, as well as the index methods, are useful as quality
control to assess the cost estimate.
The limitations of this method are the following:
 It is only applicable to plants of similar capacity because it does not take into account the economy of
scale. This method can be utilized successfully when calculating modular plants.
 A minimum technical definition is required (weight, capacity, etc.)
An example, in graphical form is shown in the following figure.
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Figure 3. Offshore pipelines from IPA (UCEC 2008)
B) Williams Rule
This method is also called the six-tenths factor rule; Williams introduced the scale concept, according to the
following rule, if the cost of a given unit b at one capacity is known, the cost of a similar unit a with X times the
0,66
capacity of the first is X times the cost of the initial unit.
0,66
Cost of equipment a = Cost of equipment b X
In a more general form, William’s rule can be expressed as:
Where:
- Ca and Cb: Cost of equipment a and b.
- Pa and Pb: Capacity or characteristic parameter of equipment a and b.
- N: factor
The 0,66 factor can be considered as an average for the chemical and processing industry, but more accurate
factors for some specific equipment are provided in following table 9:
Table 9. Williams Rule factor for specific equipment

William’s rule has some limitations:
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 Must not be utilized when the ratio between the characteristic parameter of equipment a and b is bigger
than 3 or smaller than 0.33.
 In all cases care must be taken to ensure that both equipment are similar with regard to type of
construction, materials, operating pressure, etc.
 This method must not be utilized for jackets and other support structures, not for offsites.
 The rule is applicable to a production train; William’s rule must not be used when the capacity increase
is obtained by adding more equipment or new trains.
C) Factored methods
The methods previously explained can be utilized only for preliminary estimates (Visualization phase), as the
accuracy is low.
At the end of the Conceptualization phase, more information is available, key equipment and materials are defined
and more accurate cost estimating methods can be used; at this stage cost estimating methods are based on the
equipment list.
Factored methods were developed based on the fact that there is a relation between the total cost and the cost of
the main equipment. Factored methods require the utilization of a data base that must be as recent and accurate as
possible.
C 1) Lang’s Method
Lang’s method was created to calculate the cost of chemical plants; the cost of each equipment (FOB) is multiplied
by a factor depending on the type of plant.
C  F   Ei
Where:
- F: Lang’s factors
- Ei: Cost of equipment i.
The factors proposed by Lang are the following:
 Solids treatment plants: 3,10
 Fluids – Solids treatment plants: 3,63
 Fluids Plants: 4,74
C 2) Gallager’s Method
This method is based on Lang’s method; Gallagher proposes to improve Lang’s method by adding two factors:
 The cost of materials, civil works, construction and engineering required by different equipment is not
the same for all the equipment.
 If we compare a carbon steel built facility and a stainless steel one; some materials, for example piping,
increase its value as well as the equipment; whereas other cost components, for example, construction,
remains almost the same for both materials. For that reason the ratio between total cost and equipment
cost tends to be lower for installations built with more expensive materials.
Table 10 shows an example of the effect of different materials on the factor:
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Table 10. Materials effect on the factor

C 3) Miller’s Method
This method is also a variation of Lang’s method; it takes into account the complexity of the plant; for each family of
plants the factor is represented by a curve, instead of using a single value. The complexity index considered by this
method is the average unit cost of the equipment (total equipment cost / nº of equipment):
 Complex equipment (more expensive) has an installed cost / equipment cost ratio lower than low
complexity equipment.
 High pressure and special materials equipment also show a lower installed cost / equipment cost ratio
than standard equipment.
Figure 4. Curve for factor per unit cost of equipment

C 4) Hand’s Method
Hand’s method utilized Lang’s method individually for each equipment.
C   Ei  fi 
Where:
- C: Plant cost
- Ei: Cost of equipment i.
- fi: factor for equipment i.
Hand proposed the following factors:
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 4,0 for columns, pressure vessels, pumps and instrumentation

 3,5 for heat exchangers
 2,5 for compressors
 2,0 for boilers and furnaces
Table 11 proposed by Wroth increases the equipment detail and can be used in the Hand’s formula:
Table 11. Factors for Hand’s Method

This method provides more detail than Lang’s method, but requires more time and must be carefully utilized as it
does not include equipment that is not defined (Lang’s factor takes into account plant’s equipment as a whole).
C 5) Chilton’s Method
Chilton considers the cost of the installed equipment, instead of the purchased equipment, as starting point for the
calculation. Costs directly involved in the equipment installation are estimated by Chilton between 40 and 120 per
cent of the cost of the purchased equipment. More specific values are provided by Peters, Timmerhaus and West
method.
Table 12 below represents the Chilton’s method, the proposed factors are not a single value, but a range; the cost
estimator must choose the proper value depending on the particularities of each case; or select a range for the
factors in order to get a range for the cost.
After the calculation of the installed equipment cost, the next step is to evaluate the total physical cost (8th row) by
selecting the appropriate factor for each concept. Total plant cost (12th row) is obtained by adding the costs related
to items from 9 to 11 to the total physical cost for every equipment.
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Table 12. Chilton’s Method

C 6) Peters, Timmerhaus’s And West Factors
Max S. Peters, Klaus D. Timmerhaus and Ronald E. West in their book Plant Design and Economics for Chemical
Engineers, fifth edition; proposed several factors that are applied to the purchase equipment costs.
Purchased equipment
Are considered as f.o.b. (free on board, the purchaser pays the freight).
Equipment delivery
Freight costs depend on many factors: distance, size of the equipment, etc.; but, as a preliminary estimate a 10 per
cent of the purchased equipment cost can be used.
Purchased equipment installation
Includes all the factors directly involved in the erection of the purchased equipment.
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Table 13. Peters, Timmerhaus’s And West Factors

Ranges are provided to take into consideration the complexity and type of plant. Equipment and piping insulation is
often included under equipment installation and piping costs, and can be from 8 to 9 per cent of the purchased
equipment cost.
Instrumentation and control
Total instrumentation and control cost depends on the amount of control required, and can range between 8 and 50
per cent of the delivered equipment cost.
Piping
Covers all the factors involved in the complete erection of piping system.
Table 14. Factors for piping

Material and labour for piping insulation can vary between 15 to 25 per cent of the total installed cost of the piping.
Electrical systems
The cost of electrical systems is considered to be between 15 to 30 per cent of the delivered-purchased equipment
cost.
Buildings
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Table 15. Factors for buildings

Yard improvements
Includes costs for fencing, grading, roads, sidewalks, railroad sidings, landscaping, etc. The cost of these items for
chemical plants can be considered between 10 and 20 per cent of the purchased equipment costs.
Table 16. Factors for yards

Service facilities
The cost for service facilities generally ranges from 30 to 80 per cent of the purchased equipment cost. Service
facilities cost used to be in the upper part of the range for complex plants. It must be taken into account that,
commonly, plant expansions will not require a full set of service facilities.
In plants where the number of service facilities is low, the factor to be used will be, typically, in the upper part of the
range.
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Table 17. Factors for service facilities
D) Cost Indexes
Cost indexes are developed to take into account the change of prices over time; cost indexes update the original
prices including variations due to changing market or economic conditions.
The general formula utilized for cost indexes is the following:
Present Cost = Original Cost x (Index value at present / Index value at time original cost was obtained)
It is recommended not to use indexes when the period involved is more than 10 years.
Different indexes are published regularly; some of them apply to complete installations, others to: equipment costs,
materials, labor, etc.
Some of these indexes are:
 Marshall and Swift.
 Chemical Engineering Plant.
 Upstream Cost Engineering Committee from Independent Project Analysis (IPA). Database available for
Repsol employees, under request.
 Cambridge Energy Research Associates (CERA)
 Market Survey System (MSS)
 Monthly Labor Review.
 International Journal of Production Economics.
 Nelson - Farrar
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Some of these indexes are shown as examples below (as a reference only, the cost estimator should obtain an
updated version of these documents for his/her specific cost estimate).
D 1) Examples of Cost Indexes
Nelson – Farrar Index:
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Chemical Engineering Plant index:

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Upstream Cost Engineering Committee index from IPA:

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Market Survey System (MSS):

Two examples are shown from subsea and compressors reports; MSS provides detailed information through
dedicated segment market analysis reports; currently the following reports are available:
 Conceptual Studies / FEED.
 Gas Turbines.
 Line Pipe.
 LNG Liquefaction Facilities.
 LNG Regasification Terminals.
 Onshore Production Facilities.
 FPSO / FSO.
 Topsides Fabrication.
 Subsea Equipment.
 Offshore Pipelay.
 Offshore Heavy Lift.
 Offshore Installation DSV / ROVSV.
 OCTG.
 IMR (Platforms).
 Gas Compressors.
 Onshore Pipelay.
 Heat Exchangers.
 Industry Trends.
 Drilling Fluids.
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 EPCM.
 Helicopter Services.
 Oil Sands Mining.
 Well Logging.
 Floaters (Semis, TLPs, Spars).
 Offshore Accommodation.
 Construction Labour.
E) Contingency estimating methods

This chapter describes methodologies utilized for the calculation of contingencies, both for cost and schedule
estimating, schedule uncertainties must be translated into cost, in order to arrive a single contingency value.
These contingency estimating methods are to be considered a guideline; the Cost Estimating Engineer must adapt it
depending on the particularities of the project.
It is important to differentiate contingency from Management Reserve and from allowance (see Definitions).
As an example of allowance we can consider the extra amount of piping material to be purchased to take into
account material losses due to cuts, etc. Every allowance considered by the project team must be clearly specified.
From a practical point of view, the contingency is the amount of money that must be added to the base estimate to
reach the estimate required by the Company. In the example shown in Figure 5, having a base estimate of 217 M$,
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a 12.46 % (27M$) contingency is needed to reach 244 M$, which is the Pmean (note that in Repsol’s case,
contingencies are up to P50 instead of Pmean).
Table 4 shows typical contingency values for the different classes of Cost Estimates. The value to be used will vary
depending on the specific conditions of the project, such as: technical complexity, previous experience, available
resources, location, etc.
Figure 5. Cost Uncertainties and typical Probability Distribution

E 1) Expert judgment
This method relies on the experience of the specialist. Expert judgment is always utilized; as the unique contingency
estimating method (when a quick contingency estimate is required) or in combination with other methods, for
example when a result is compared against common contingency ranges.
This method is subject to bias, for that reason, when using expert judgment, it is recommended to obtain the
consensus of multiple experts or an experienced team, in both cases independent opinion must be guaranteed.
E 2) Predetermined guideline
This is a very simple method, based on some values or tables that provide the contingency to be used, depending
on the type of project or cost estimate. Examples of this method are the contingency ranges provided in Table 4 that
depend on the cost estimate class.
The advantage of this method is that it is simple, understandable and consistent. On the other hand, this
methodology does not consider project specifics so unique projects (e.g. projects with high technological content)
should not be only evaluated with this method.
E 3) Simulation analysis
These methods combine expert judgment with an analytical model that is then used in a simulation routine to
provide probabilistic output.
Advantages of these methods are that they consider project specific uncertainties and provide a probabilistic output.
It also includes the project team’s experience.
The main disadvantage is the complexity; this can result in a lack of consistency between different estimates as they
become dependent on the project team experts.
With these methods it is more difficult to include project systemic risks which are predominant for early estimates,
and should still be considered in this phase.
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The most common methods in use are Range Estimating and Expected Value.
E 3. 1) Range estimating
Range estimating is a risk analysis technique that combines Monte Carlo sampling, a focus on a few critical items
and heuristics (rules of thumb) to rank critical risks and opportunities. Although this technique description refers to
risk analysis, it can be adapted using uncertainties ranges instead of risks and then, using Monte Carlo, provide
contingencies and accuracy.
Range estimating gives the probability of having a cost overrun, how large the overrun can be, what to do now to
eliminate or reduce that risk and how much contingency to add to our estimate to reduce any residual risk to an
acceptable level.
The steps of range estimating are the following:
 Risk identification
 Critical items identification
 Range determination
 Definition of probability density functions
 Contingency determination
Once the different risks have been identified, critical items must be selected. A critical item is one whose actual
value can vary from its target, either favorably or unfavorably, by such a magnitude that the base cost of the project
would change by an amount greater than the critical variance.
Typical critical variances are shown in table 18:
Bottom Line Conceptual Estimates Detailed Estimates

(Cost or Profit) (AACE Classes 3, 4, 5) (AACE Classes 1, 2)
Cost Δ ± 0.5% ± 0.2%
Profit Δ ± 5.0% ± 2.0%
Table 18. Typical critical variances
It is important to note that the deciding factor in determining criticality is an element’s potential for variation, not its
magnitude. An element may account for a very small proportion of the base cost but vary from target by such a
degree that the base cost change would be greater than the critical variance; an element such as this is a critical
one.
In most of the projects the number of critical elements is between 10 and 20. The previous critical variances give a
preliminary idea about how to identify critical items, but in cases were the number of critical items is larger than 20 or
lower than 10; critical variances should be adjusted.
“In identifying critical items, it is necessary to link strongly related items together, not to treat them separately”.
AACE RP No.41R-08.
“It is also necessary in the range estimate to apply ranges only to the items which are identified as being critical. The
project team must know when an item is important and when it is not. If non-critical items are ranged, the inevitable
result will be a far narrower predicted range of possible project costs than actually exists, misstatements of risk and
opportunity, and understatement of required contingency”. AACE RP No.41R-08.
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The range is specified by three parameters: the probability that the item’s actual value will be equal to or less than its
target, a lowest estimate (with its probability, usually p10) and a highest estimate (with its probability, usually p90).
When quantifying probabilities becomes difficult, it is often helpful to elicit a qualitative assessment and then
translate it into a quantitative form. The first step is to ask if it is (likely, unlikely or equally likely as unlikely) that the
item’s actual value will be equal to or less than its target; what is the likelihood that the actual value will not overrun
the target.
When the answer is equally likely as unlikely, the probability is 50%. If the answer is likely the probability is greater
than 50 and its specific value must yet be determined. If the answer is unlikely the probability is less than 50 and its
specific value must yet be determined.
If the answer is likely, the next step is to ask if it is (somewhat, very, highly, extremely) likely that the actual value will
be equal to or less than its actual value; the following percentages can be associated to each case:
 Somewhat: 60%
 Very: 70%
 Highly: 80%
 Extremely: 90%
If the answer is unlikely, the same procedure can be utilized, with the following percentages:
 Somewhat: 40%
 Very: 30%
 Highly: 20%
 Extremely: 10%
When it is difficult to make a choice between two values a mid-point can be used.
For the purposes of the Guide the lowest level is to be considered as the P10 value (only 10% probability that the
cost is not overrun), the highest value will be P90 (only 10% probability of cost overrun); but different values can be
utilized if required. In general the probability density function to be used is the triangular.
AACE RP 41R-08 (Risk analysis and contingency determination using range estimating) provides more information
about this methodology.
E 3. 2) Monte Carlo simulation
Monte Carlo is a simulation technique that utilizes random numbers and repetitive calculations to statistically analyze
problems that are not otherwise easily solvable.
To capture uncertainty, Cost Estimating Engineer(s) can perform simple “what if analysis” or “scenario analysis” by
manually changing model variables and analyzing their effect on the key outputs. This approach provides a range of
possible outcomes but does not impart an understanding of the likelihood of any particular outcome.
More often, a best case, worse case, and most likely case analysis will be performed; where all uncertain variables
are at their best, worse, or likely values at the same time. This approach has limited benefit because most real-world
problems involving elements of uncertainty are too complex to be solved analytically. There are simply too many
combinations of input values to calculate every possible result.
A probability distribution is applied to each input variable, representing the uncertainty in the variable. A random
value is then drawn from each probability distribution and the output value measures are calculated. By applying this
procedure repeatedly a histogram of the output value measure is obtained. The accuracy of this method is
dependent on the number of simulations performed.
Monte Carlo Simulation Process:
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1. Define variables (type of distribution and ranges).

2. Define dependencies and correlations.
3. Perform simulation passes.
4. Compute resulting probability function.
5. Check results against reality.
Advantages of Monte Carlo Simulations:
 Provides an easy way to deal with many uncertainties using probabilistic data.
 Can handle larger number of variables than decision trees.
 Provides a quick and simple method to evaluate complex problems.
 Distributions include full range of specialist knowledge.
 Sensitivities and drivers are readily assessed.
 Dependencies can be modelled.
 Cost (Contingency) sensitivity to schedule is easily assessed.
Cautions:
 Monte Carlo simulation is not a substitute for careful evaluations.
 Do not use Monte Carlo simulation as the only evaluation method when the value of the information is a
concern.
Software:
There are several commercial programs available to carry out Monte Carlo simulations; for example:
 Crystal Ball®, Oracle, included in the suite of Project Management and Control System (PROMACOS)
tools
 @Risk®, Palisade, included in the suite of Project Management and Control System (PROMACOS)
tools
 GoldSim
E 3. 3) Other Contingency Estimating Methods
Other contingency estimating methods such as Expected value or Parametric modelling can be studied in more
detail in the following AACE recommended practices:
 Risk analysis and contingency determination using parametric estimating – Example models as applied for
the process industries. AACEi RP43R-08
 Risk analysis and contingency determination using parametric estimating. AACEi RP42R-08 and 44R-08
Appendix III Specific Cost Estimates

A) Subsea and Offshore Pipelines Cost Estimating
In order to provide some help to the cost estimator a brief description of Subsea Systems and Offshore Pipelines is
included below:
1. Subsea System
1.1. Trees
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Subsea trees and tubing hanger equipment is estimated in this account. The source of equipment
pricing is based on the available pricing commensurate with the stage of the project. For instance,
equipment pricing in the conceptualization phase would likely be from in-house, data, in the definition
stage, from budget quotes and in the execution stage, be from firm bid prices and negotiations in
progress. The purchase cost and installation of subsea trees is normally included in the Drilling and
Completions account.
1.2. Production controls
Production controls includes equipment mounted controls as well as distributive controls. The
installation of the true subsea components is always accomplished as part of the subsea installation.
The controls located on the topsides may be estimated in conjunction with the subsea installation or be
included as part of a larger Brownfield or Greenfield scope of work for topsides.
1.3. Subsea structures
Subsea structures are used in varying subsea gathering, water injection and product flow configurations.
The estimated costs for these elements can be based on their inclusion in the lump sum installation
contract or estimated based on the provision of the piping, valves, actuators, fittings, hubs, connectors
and base structure to a fabrication subcontractor and free issued by the operator to the installation
contractor. The installation of these assemblies is part of the scope of the subsea pipelines installation
contractor as they are an integral part of the subsea gathering and flowlines configuration.
1.4. Subsea jumpers
Jumpers occur at the Well and connecting the flowline to the Manifold or PLEMs. The fabrication and
installation of the jumpers may, or may not be included in the subsea flowlines installation, depending on
the schedule and the contracting strategy for the project. Because of the flexible nature of the flowlines
and subsea structures installation and subsequent settling, the Jumpers cannot be completely fabricated
in advance of the installation. Once the flowlines, structures and wells have been placed and have
settled sufficiently, the measurement or “metrology” for the jumper can be accomplished. The jumpers
may be rough fabricated awaiting the final precise measurements and then finish fabricated, transported
to location and installed.
1.5. Umbilicals
Umbilicals are manufactured in the specific configuration, (number & size of tubes, cable and fiber optic
cable), required by the project.
Since umbilicals are of substantial lengths and are transported on reels or in carousels; they represent
significant effort and cost in transportation from the manufacturer.
Additional provisions may be needed in the estimate to cover the extra handling, storage, preservation
and inspection of the umbilicals before and after delivery, and prior to installation. Another cost
consideration is the costs for renting the reels or carousels as well as the storage and return
transportation of the rented reels, depending on the project schedule.
Installation of umbilicals can be accomplished by a variety of vessels depending on the characteristic of
the umbilical, (diameter, number of tubes, armour protection, length, reel or carousel deck space), that
are considerations when selecting the appropriate on-board equipment and vessel size. Other factors
such as the water depth of installation combined with the physical characteristics of the umbilical affect
the suspended weight of umbilical during installation and should be considered when assessing the
assumed vessel for the job.
1.6. Gathering and Flowlines
Gathering and flowlines are piping systems for production and water injection configurations consisting
of bulk pipe orders from the pipe mills, transported to coating and insulation yards where the coatings
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are applied, and anodes and forgings such as buckle arrestors are usually installed before provision to
the offshore installation contractor.
The transportation from the mill to coating yard may be included in the price of the pipe or may require
estimation as part of an owner’s indirect cost. Similarly the transportation and delivery to the offshore
installation contractor may require the same consideration.
The offshore installation contractor will provide the necessary project management throughout the
installation scope of work and will also provide significant engineering service in the preparation of
installation procedures, welding methods and welder qualification, tensioner testing, vessel readiness
certifications, etc.
Offshore installation will be accomplished by a fit for purpose vessel and crew depending on the
requirements specific to the conditions of the pipelay. Generally the offshore installation contractor will
flood; gauge and test the flowlines and either leave them filled with inhibited fluids or dry them to
specification. The actual commissioning of the flowlines is usually left to a commissioning scope of work
later to accommodate schedule and commercial requirements.
1.7. Risers
Risers are either pre-installed as part of the fixed or floating assemblies or fabricated and installed as
part of the offshore installation by the flowlines installation contractor. Risers may be flexible or rigid pipe
and may have significant catenary transition sections. Rigid riser systems are usually fabricated by the
offshore installation contractor and may be stalked installation or pulled to the topsides by winches or
cranes. End bore matching; coating and insulation are often required in the fabrication of rigid risers.
Flexible risers are armored, insulated and coated by the manufacturer as required by the project
specifications.
2. Offshore Pipelines
Offshore pipelines comprise three main segments; the offshore export pipeline, the nearshore pipelay and the
shore crossing. In some cases the offshore pipeline will terminate at a delivery jetty specifically designed to
receive one or more offshore pipelines.
2.1. Export pipelines
The offshore export pipeline is a pipeline to conduct the product from the production unit to the shore. The
cost elements of the export pipe consists of bulk pipe orders from the pipe mills, transported to the coating
and insulation yards where the coatings are applied, and anodes and forgings such as buckle arrestors are
usually installed before provision to the offshore installation contractor.
The transportation from the mill to coating yard may be included in the price of the pipe or may require
estimation as part of an owner’s indirect cost. Similarly the transportation and delivery to the offshore
installation contractor may require the same consideration.
2.2. Installation
The installation of the export pipeline encompasses three main areas of work requiring very different
equipment spreads and work processes. These three areas are; the offshore, or deep-water pipelay, the
nearshore, or shallow-water pipelay and the shore crossing. The offshore installation contractor will provide
the necessary project management throughout the installation scope of work and will also provide significant
engineering service in the preparation of installation procedures, welding methods and welder qualification,
tensioner testing, vessel readiness certifications, etc.
The offshore deep-water export pipeline installation will be accomplished by a fit for purpose deep-water
pipelay vessel and crew depending on the requirements specific to the conditions of the pipelay.
The nearshore export pipeline installation will be accomplished by a vessel with a shallower draft that will
allow it to maneuver closer to shore to install the pipeline. The nearshore pipelay vessel will also participate
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in the shore-pull operation, welding and feeding out the pipeline. In some situations the nearshore work may
also require a dredging or trenching vessel and possibly require stabilization by rock dump or concrete mats
covering the pipeline to a specified water depth or distance from shore.
Lastly the shore crossing will usually involve the combined efforts of the nearshore pipelay vessel and a
significant onshore spread of equipment and manpower. The shore crossing equipment spread will include
equipment to trench and backfill the onshore portion of the pipeline route from the shore to the valve station.
In some situations it may be necessary for more substantial civil work to construct a coffer dam at the
shoreline. Additionally there will be winching equipment and a hold-back pile or block of sufficient size to
provide restraint to accomplish the shore pull.
Generally the offshore installation contractor will pre-commission the pipeline from the offshore production
facility to the shore. The commissioning of the pipeline will often require more extensive swabbing, drying
and purging of the line depending on the product requirements.
In some remote locations it may be necessary to estimate the costs for onshore site development,
construction camp & catering and security, if the shore crossing work is substantial enough to be of an
extended duration and the time to get the personnel to and from the site is prohibitively long.
B) Location factor
Location factors allow comparing cost differences between two geographical locations; it includes changes in
productivity, taxes, equipment costs, materials costs, labour costs, etc. When the cost estimate is calculated utilizing
a similar project in a different geographic area, the location factor can be critical as it can result in large cost
differences. Location factors are mainly utilized for Class 5 and Class 4 Cost Estimates. For Class 3 and better
estimates typically data from local contractors is available.
Details concerning location factor calculation can be found in the following recommended practice: Developing
location factors by factoring – As applied in architecture, engineering, procurement and construction. AACE RP28R-
03.
Appendix IV. Cost Estimating Process for detailed estimates

In 2006, AACE published their Total Cost Management (TCM) Framework, an Integrated Methodology for Portfolio,
Program and Project Management. The process map for (detailed) cost estimating and budgeting from the TCM
Framework is depicted in Figure 6:
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Figure 6. Process map for detailed cost estimating
Appendix V. Reference Documentation

Internal Reference Documentation
 Authorization of Investments, Divestments and Expenses (00-00060NO)
 Concept Selection Matrix deliverable card (available in “GIP Templates & Tools” area in the GIP
Sharepoint at Know-Howse portal in Repsolnet )
 E&P Asset Decommisioning (20-00091PR)
 E&P Capital Expenditure Escalation and Updating document
 Project Risk Management (20-00099PR)
 Project Planning & Scheduling (20-00094PR)
 Manual de estimaciones. December 2008. Repsol. Dirección de Ingeniería y Tecnología.
 Project Management Plan (PMP) document (available in “GIP Templates & Tools” area in the GIP
Sharepoint at Know-Howse portal in Repsolnet)
 Project Risk Management (20-00099PR)
 VCDE Overview GIP Methodology document (See GIP Sharepoint at Know-Howse portal in Repsolnet)
 Well Construction Time and Cost Estimating (20-00064PR)
 Work Breakdown Structure Guideline (See GIP Sharepoint at Know-Howse portal in Repsolnet)
External Reference Documentation

 A Guide to the Project Management Body of Knowledge (PMBOK Guide). 4th Edition. 2008. Project
Management Institute (PMI).
 GAO (United States Government Accountability Office). GAO Cost Estimating and Assessment Guide.
March 2009.
© Repsol, S.A., 2016.
49 / 51
Business Regulation
DG E&P
 NORSOK STANDARD z-014. Rev. 1. Oct. 2002. Norwegian Technology Centre.

 Plant Design and Economics for Chemical Engineers. 5th Edition. 2003. McGraw-Hill.
 Practice Standard for Project Risk Management. Project Management Institute.
 Recommended Practices. Association for the Advancement of Cost Engineering:
(“Cost estimate classification system. AACEi RP17R-97” and “Cost estimate classification system – As
applied in engineering, procurement and construction for the process industries. AACEi RP18R-97”).
Developing location factors by factoring – As applied in architecture, engineering, procurement and
construction. AACEi RP28R-03
Required skills and knowledge of cost engineering. AACEi RP 11R-88
Reviewing, validating and documenting the estimate. AACEi RP31R-03
Cost engineering terminology. AACEi RP10S-90
AACEi Recommended Practice RP 34R-05 (Basis of Estimate).
AACE RP 41R-08 (Risk analysis and contingency determination using range estimating)
AACE RP 42R-08
AACE RP 43R-08
AACE RP 44R-08
 Total Cost Management Framework (TCM). 1st Edition 2006. Association for the Advancement of
Cost Engineering.
© Repsol, S.A., 2016.
50 / 51
Business Regulation
DG E&P
Approval
Validity
This document will enter into force as of the 10th working day following its date of approval.
Revoked regulations
 Cost Estimating Guideline (GIP Guideline version Madrid 2014)
 Global Procedure Project Cost Estimates (HSSEOI-PRO-01 Rev: 2- January 2012, Legacy Talisman)
General and temporary provisions

None
Revision 0.0 approved by:
Jose María Ruíz Rodríguez

D. Global Projects
22/07/2016
© Repsol, S.A., 2016.
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Project Cost Estimating

Type: Procedure Scope: Business Global Code: 20-00098PR

Owner: D. Global Projects Revision: 0.0

Project Cost Estimating

Owner: D. Global Projects Revision: 0.0

Project Cost Estimating

Owner: D. Global Projects Revision: 0.0

E 3. 3) Other Contingency Estimating Methods ...........................................................................45

Project Cost Estimating

Owner: D. Global Projects Revision: 0.0

1. Definitions and abbreviations

Project Cost Estimating

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Project Cost Estimating

Owner: D. Global Projects Revision: 0.0

Figure 1: Definitions summary chart

Project Cost Estimating

Owner: D. Global Projects Revision: 0.0

Project Cost Estimating

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Project Cost Estimating

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3. Project Cost Estimates through the Asset Life cycle

Figure 2. VCDE Process for E&P Projects

Project Cost Estimating

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3.1. Exploration and Appraisal projects

3.2. Visualization Phase

3.3. Conceptualization Phase

Project Cost Estimating

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DEFINITION EXECUTION EXECUTION

ACTUAL CURRENT CLASS 3 CLASS 4 CLASS 5 CLASS 4 CLASS 5

Table 1. Gate 2 Development Projects Cost estimates

3.4. Definition Phase

DEFINITION EXECUTION EXECUTION

ACTUAL ACTUAL CURRENT CLASS 3 CLASS 5 CLASS 3 CLASS 5

Table 2. Gate 3 Development Projects Cost estimates

Project Cost Estimating

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3.5. Execution Phase

4. Cost Estimate Classes

Project Cost Estimating

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Table 3. AACEI 17R-97 Cost Estimate Classification Matrix

Project Cost Estimating

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Project Cost Estimating

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Project Cost Estimating

Type: Procedure Scope: Business Global Code: 20-00098PR

Owner: D. Global Projects Revision: 0.0

Table 5 Estimate typical inputs. General Data

Project Cost Estimating

Type: Procedure Scope: Business Global Code: 20-00098PR

Owner: D. Global Projects Revision: 0.0

General Engineering inputs Estimate Classification