CGE665

Facilities Engineering
Chapter 1 – Overview of Oil & Gas
Industry

Lecturer: Fazril Irfan Ahmad Fuad

UNIVERSITI TEKNOLOGI MARA

 Profile
• Office- Lecturer Room level 18
• Mobile No : 0172591731
• Email- fazrilirfan@salam.uitm.edu.my
• Education Background
 BSc in Mechanical Eng – Maj – Pet & Materials (UTP)
 Msc in Petroleum & Gas Eng. (Salford,UK)
• Working experience
 WorleyParsons (Asset Integrity Engineer)
 PUSB Brunei (Mechanical Engineer)
 British Petroleum (BP) Chemicals (Mech Engr)

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 Course Information
Subject Name Facilities Engineering
Code CGE665
Credit hour /contact hour 3 (3 hour Lecture & 1 hour
Tutorial per week)
Level Bachelor
Prerequisite (if any) Nil
Assessment
Tests/ Assignment/Quiz/ 40%
Project
Final Exam 60%
Semester Taught 6

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 OVERVIEW OF CGE665

This course is designed to introduce the

students with the surface equipment
related to Exploration and Production
(E&P) processes and the conception of the
overall facilities setup as well as designing
of some of the critical equipments.

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 Course Objectives (CO)
Upon completion of this course, student should be able to:
• To describe and identify suitable equipment and processing
techniques for petroleum production and export facilities in
aspect of standard design, power generation and energy
utilization according to relevant international codes and
standards to operation and design of oil and gas facilities
• To integrate the first stage design and optimization technique in
the selection of major process equipment on oil & gas facilities
and evaluate the design power generation and energy
utilization systems for oil and gas exploration and production
activities
• To identify and describe the equipment used in subsea
developments and issues associated with flow assurance.
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 Aims
• Fundamental Engineering skills required to:
– Design
– Operate
– Maintain
– Decommission
Oil & Gas processing facilities that deliver sales
specification hydrocarbon products from well to
point of sale.
Oil & Gas Facilities
 Scope
• Processing • Measurement
– Separation – Metering
– Dehydration – Allocation
– Sweetening • Control
– Produced water handling – Process control
• Transportation • Integrity Management
– Pipelines – Safety Systems
– Pumps – Corrosion control
– Compressors – NDT
– Storage • Lifetime Management
– Loading – Offshore Structures
– Decommissioning
Chapter 1 - Overview
Outline - Chapter1

Overview of the oil & gas industry

1
1 E & P business
1.1) Phases of E&P Activities
1.2) Details of Project Dev. Phase

2
2 E & P Project Costs

3
3 PSC – Production Sharing Contract (Malaysia)

4
4 Project Life Cycle Concept

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1.1a. E&P Business- Acquisition of Rights
Phases of Activities in Petroleum Industry

Acquisition of Rights To obtain permission from government

or relevant agency before drilling of
Exploration wells.
These can be done through

A) Concessions Agreement : E&P activities are determined

by the Contractors. The host
country only interested in the
profits (profit sharing and taxes)
B) Production Sharing
Contracts Agreement: E&P activities are performed by the
(PSC) Contractors and approved by the host
country / agency. Costs are recoverable
through some mechanisms and profits
are shared. Taxes imposed.

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1.1a. E&P Business–Acquisition of Rights
Phases of Activities in Petroleum Industry

Acquisition of Rights To obtain permission from government

or relevant agency before drilling of
Exploration wells.
These can be done through (cont’d).

C) Joint Venture Agreement : E&P activities are jointly performed

by the Contractors and the host country.
Costs and profits are shared based on
the agreed equities. Taxes are imposed.

D) Service Contract Agreement : E&P activities are performed by the

host country representative but some
agreed scope of work are contracted
out to a Contractor. Costs are borne by
the host country. Contractor only
benefits from the scope of work they
have provided. Taxes may be imposed.
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 PSC
• Country's government awards the execution of exploration
and production activities to an oil company.
• The oil company bears the mineral and financial risk of the
initiative and explores, develops and ultimately produces the
field as required. When successful, the company is permitted
to use the money from produced oil to recover capital and
operational expenditures, known as "cost oil".
• The remaining money is known as "profit oil", and is split
between the government and the company, typically at a rate
of about 70% for the government, 30% for the company.
• In some production sharing agreements, changes in
international oil prices or production rate can affect the
company's share of production.
3. PSC-Malaysian Model.
COMPARISON of the 1976, 1985 AND DEEPWATER PSC TERMS

MAIN FEATURES 1976 TERMS 1985 TERMS DEEPWATER TERMS

1. ROYALTY 10% 10% 10%

2. Cost Recovery
a. Oil 20% 50% 75%
b. Gas 25% 60% 75%
3. Profit Split (In favor of Contractors)
(in favor of PETRONAS) First 10,000 bopd 50:50 First 50,000 bopd 14:86
a. Oil 70:30 Next 10,000 bopd 60:40 Next 50,000 bopd 18:82
Above 20,000bopd 70:30 Above 100,000 bopd 37:63
(for first 50 millions bbls) After cumulative production
b. Gas First 2 trillion scf 50:50 Of 300 mmbbls 50:50
Excess 2 trillion scf 70:30 To be negotiated
4. Contract Period (Yr.) 3+2 Expl. 5-Exploration 7-Exploration
4 Dev. 4-Development 6-Development
15 (oil) Prod. 15-Oil Production 25-Oil Production
20-Gas Production
5. a. Signature Bonus Nil Waived Waived
b. Discovery Bonus RM2.5 million Waived Waived
c. Production Bonus RM5.0 million Waived Waived
6. Research Cess 0.5% 0.5% 0.5%
7. Carigali’s Participation Nil Minimum 15% Minimum 15%

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 RSC (Risk Sharing Contract)
Performance-based agreements like the Berantai RSC have a tighter focus on production
and recovery rates
• Marginal Fields are located within a producing block and its main product is oil;
• The NOC provides technical, financial, managerial or commercial services to the state
from exploration through production;
• Risk service contracts – the NOC bears all the exploration costs;
• Petronas retains ownership of oil;
• The Internal Rate of Return (IRR) is estimated at between 7 – 20% subject to terms
and conditions – more attractive ROI than a PSC regime;
• Contractor receives fee payment commencing from first production and throughout
the duration of the contract
• Fee is subject to taxes – but to incentivise investment in marginal fields Malaysia has
reduced tax for from 38% to 25%, to improve commercial viability of investment
projects;
• Example : Balai Cluster (Balai, Bentara, Paoh, West Acis)
1.1b. E&P Business - Exploration
Phases of Activities in Petroleum Industry

Acquisition of Rights To obtain permission from government

or relevant agency before drilling of
Exploration wells.
EXPLORATION To search for oil and gas fields

This is a high risk activities may constitute :

a) Gravity and Magnetic Surveys :

Mapping of gravity and/or magnetic anomalies due to the
variations of the earth’s geological structures and magnetic
properties of rocks.
b) Seismic Survey : Seismic lines producing Coarse 2-dimensional
seismic grid reflecting the geophysical nature of the rocks etc.
c) Wildcat – Exploration well drilling,

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Facilities Engineering - Introduction

1.1c. E&P Business – Appraisal Phase

Phases of Activities in Petroleum Industry

Acquisition of Rights To obtain permission from government

or relevant agency before drilling of
Exploration wells.
EXPLORATION To search for oil and gas fields

To determine the commercial significance of

APPRAISAL the discovery and to shape the initial development
plan for the field.

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1.1c. E&P Business – Appraisal Phase

EXPLORATION

EXPLORATION DRILLING

Dry
RESULTS
DISCOVERY
APPRAISAL
Appraisal drilling to define the extent of discovery
Data gathering to aid in the development studies
Development feasibility studies

Inconclusive
RESULTS QUIT

DEVELOPMENT

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1.2d. E&P Business – Development Phase

Phases of
Acquisition ofActivities
Rights in Petroleum Industry from government
To obtain permission
or relevant agency before drilling of
Exploration wells.
EXPLORATION To search for oil and gas fields

To determine the commercial significance of

APPRAISAL the discovery and to shape the initial development
plan for the field.
To formulate the Field Development Plan, install
DEVELOPMENT platforms / facilities, drill and complete the
development wells.

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1.1d. E&P Business –Development Phase
This is the DEVELOPMENT of Production Concept and
IMPLEMENTATION activities.

The objectives:
To meet the maximum recovery with minimum cost.

Consideration in the Development plan are:

i) Drilling requirements. (Number of wells, well spacing and
drainage pattern, drilling program, completion strategy, etc. )
ii) Production techniques and policy anticipated. (Artificial lift
needs, pressure maintenance, etc.)
iii) Facilities required – (Drilling and Production)
iv) Development time and cost expected.

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1.1e. E&P Business – Production Phase
Phases of Activities in Petroleum Industry

Acquisition of Rights To obtain permission from government

or relevant agency before drilling of
Exploration wells.
EXPLORATION To search for oil and gas fields

To determine the commercial significance of

APPRAISAL the discovery and to shape the initial development
plan for the field.
To formulate the Field Development Plan, install
DEVELOPMENT platforms / facilities, drill and complete the
development wells.
PRODUCTION To bring oil/gas from sub-surface to surface and
to separate gas/oil/water before oil is stored and
gas is processed.

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1.1e. E&P Business –Production Phase
DRILLING OF PRODUCTION WELLS

i. Production wells are drilled by a Drilling Contractor for

the whole drilling campaign to completely produced
the prospects.
ii. The specified drill rig is mobilized and the drilling will
start.
iii. The First Oil/Gas is the first Production starting at the
platform when the first well is completed and produced
iv. The drilling campaign will drill all the planned
production wells on the platform before the drill rig is
demobilized.

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1 E&P Business - Summary
Phases of Activities in Petroleum Industry
Acquisition of Rights To obtain permission from government
or relevant agency before drilling of
Exploration wells.
EXPLORATION To search for oil and gas fields

To determine the commercial significance of

APPRAISAL the discovery and to shape the initial development
plan for the field.
To formulate the Field Development Plan, install
DEVELOPMENT platforms / facilities, drill and complete the
development wells.
PRODUCTION To bring oil/gas from sub-surface to surface and
to separate gas/oil/water before oil is stored and
gas is processed.
Processing / Export To condition the gas / oil and sell to customers.

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1.1g. E&P Business – Facilities, Transportation, Storage and
Export

Acquisition of Rights

EXPLORATION

APPRAISAL

DEVELOPMENT
Facilities Engineering, Transportation
Storage and Metering (for Export)
PRODUCTION
falls under these phases of the E&P
business
Processing / Export

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 1.2 E&P Business –Development Phase
Field Development Evaluation.

Geologist Reservoir. Eng.

•OOIP •EUR Facilities Eng. Drilling Eng.
FIELD •Types of Platforms •Max. Reach
LEVEL •Fluid Contacts •No. of Plat.
•Pipelines and •Min. Time
•Rock Quality •No. Of Wells
•Support Fac.
•Production Plan

Reservoir Eng.
•EUR Facilities Eng
Platform Geologist •Facilities Selection Drilling Eng
• Production
•OOIP •Investment Cost •Drilling Cost.
LEVEL Plan •Operating Cost
• Production
Forecast

Economic Evaluation

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1.2a1. E&P Business– Details of Project
Development & Implementation Activities

Oil and Gas Development Activities:

a. FEASIBILITIES STUDIES
b. CONCEPTUAL DESIGN/FEED/DD
c. FABRICATION / CONSTRUCTION
d. INSTALLATION
e. HOOK-UP AND COMMISSIONING
f. DEVELOPMENT DRILLING

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1.2a2. E&P Business–Projects Development & Implementation
Oil & Gas Projects Milestones.

Year 1 Year 2 Year 3 Year 4

Feasibility Study
Conceptual Design

Detail Design

Procurement / Long Lead Items

Contracting

Fabrication

Installation

Hook-up & Commissionin

Drilling & Production

Project Development Project Implementation

First Oil/Gas
Production

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Facilities Engineering - Introduction

1.2b. E&P Business–Project Development

Oil & Gas Projects Milestones.
FEASIBILITY STUDY

i. General Concept Definition

ii. Preliminary Cost Estimates
iii. Economic Evaluation
iv. Feasibility Screening Studies
v. Field Development Plan
vi. Work Program and Budget
NB. Done by an In-house Project Team

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1.2c. E&P Business–Project Development
Oil & Gas Projects Milestones.
CONCEPTUAL DESIGN (Front End Engineering)

i. More Detail Concept Definition

ii. Facilities Optimization
iii. Environmental / Site Surveys
iv. Design Specifications
v. Contracting Strategies / Documents
vi. Design Basis Memorandum or Conceptual
vii. DBM Report.
NB. Usually done in-house/contractor

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1.2d. E&P Business–Project Implementation
Oil & Gas Projects Milestones.
DETAIL DESIGN

i. Develop specifications for each equipment.

ii. Approved for Bid (AFB) Drawings
iii. Approved for Construction (AFC) Drawings
iv. Detail Design Report
v. Materials Procurement for long lead items.
NB. Specifications, AFB/AFC are either done in-house or
by Design Consultants.
Procurement are done by Purchasing unit.

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1.2e. E&P Business–Project Implementation
Oil & Gas Projects Milestones.
PROCUREMENT & FABRICATION

i. Fabrication works are done at Fabrication

Yards – chosen through competitive bidding.
ii. Procurement of Materials e.g. tubular, sheet
metals, valves, welding equipment,
construction equipment such as cranes are
responsibilities of the fabrication contractors..
iii. Pre-commissioning of individual systems e.g.
pumping unit, heat exchanger and fire deluge.
iv. Load-out and transportation

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1.2f. E&P Business–Project Implementation
Oil & Gas Projects Milestones.
INSTALLATION

i. Installation is performed by Installation Contractors

obtained through competitive bidding.
ii. Used Installation Spread consisting of Installation /
Crane Barge , Tug Boats, Supply Vessels, Divers @
Diving Equipment, Construction Crew, Steam
Hammers, Welders and Riggers and onboard
accommodation and catering.
iii. Hook-up and Commissioning can be part of the
installation scope of works.
iv. System Testing and Start-up.

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1.2g.E&P Business–Project Implementation
Oil & Gas Projects Milestones.
PIPELINE INSTALLATION

i. Pipeline installation is performed separately by a

Pipeline Installation Contractors obtained through
competitive bidding.
ii. Used Installation Spread consisting of Pipe Laying
Barge , Anchor Handling Boats, Supply Vessels, ROV/
Equipment, Construction Crew, Welders and Riggers
and onboard accommodation and catering.
iii. Pressure Testing and Commissioning are part of the
installation scope of works.
iv. System Testing and Start-up.

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1.2h. E&P Business–Project Implementation
Oil & Gas Projects Milestones.
DRILLING and PRODUCTION
i. Production wells are drilled by a Drilling Contractor for
the whole drilling campaign to completely produced
the prospects.
ii. The specified drill rig is mobilized and the drilling will
start.
iii. The First Oil/Gas is the first Production starting at the
platform when the first well is completed and produced
iv. The drilling campaign will drill all the planned
production wells on the platform before the drill rig is
demobilized.

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2. E&P Project Costs.
a. CAPEX Costs.
Exploration – Seismic Survey
- Exploration wells
Appraisal wells
Platforms / Jackets
Development Wells
Production Facilities
Pipelines – inter-platforms & to shore
Terminals & Export facilities
b. Operating & Maintenance Costs.

c. Abandonment Costs.
Facilities Mothballing & Removal,
Wells plugging & Facilities Removal

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2a. E&P Project Costs.
Development Wells

 Depend on - Total Reserves

- Reserves per well
- Off-take rate
 Include - Drilling
- Casing/Cementing
- Completion equipment
- Well Heads
 Type - Production Wells
- Injection Wells
 Statistics - USD 2 million / well (shallow wells:
4,000 ft.)
- USD 4 million / well (deep wells :
8,000 ft.)
 Reserves - 1.5 to 4 million bbls/well
(average 2.5 million bbls/well).

 Capacity - 1000 – 2000 bopd/well

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2b. E&P Project Costs.
Platforms / Jacket

 Depend on - Field Size (Area Extend )

- Water Depth
- Number of Slots for Drilling of wells
 Include - Structure
- Piles (depends on depth of penetration) /
Foundation.
- Conductors (for wells)
 Type - Central Production & Processing (CPP)
- Satellite Production (SP)
- Manned / Unmanned
 Statistics - CPP = USD 65 million Water depth up to
- SP = USD 25 million 70 meters
 Reserves - CPP = 60 Million Bbls.
- SP = 30 Million Bbls.

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2c. E&P Project Costs.
Production Facilities

 Depend on - Throughput Volume

- Requirement for Gas and/or
Water Injection
- Requirement for Gas Lift Requirement
 Include - Processing Facilities
- Injection Facilities.
- Pumping Facilities
- Power Generation
 Statistics - 70% of Wells Costs (Approximation).

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2d.E&P Project Costs.
Pipelines

 Depend on - Throughput Volume

(Diameter & Wall-thickness)
- Distance/Length
- Materials Specifications
 Include - Facilities (Pumps & Compressors)
- Storage Capacities
- Loading or Pumping Rates
 Type - Oil Pipelines
- Gas Pipelines
 Statistics - 15 to 20 for oil CS X 52
(USD/in./m) - 20 to 30 for gas CS X 65

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2e.E&P Project Costs.
Terminal / Tanker

 Depend on - Throughput Volume (Storage Capacity)

- Infra - Structure
 Include - Facilities
- Storage Capacities
- Loading or Pumping Rates
 Type - Terminal (Oil)
- Tanker (FPSO/FSO)
 Statistics - USD 400k/1000 bbls. capacity
- USD 100k-200k/1000 bbls. capacity.

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2f.E&P Project Costs.
Operating & Production

 Depend on - Type of Operations

(Onshore/Offshore)
- Gas Injection
- Water Injection
 Include - Facilities Operating/Maintenance
- Overhead and management
- Wells workovers
 Statistics - Based On Cumulative CAPEX
- 9% for Compressors
- 1% for Structures / Jackets
- 1% for Pipelines
- 10 % for wells tangibles
- 10% for on-shore Terminals
- USD 0.5 million – USD 2 millions / well

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2g.E&P Project Costs.
Abandonment

 Depend on - Type of Facilities Size & Complexity

- Location (Offshore/Onshore)
- Scope of Work ( Total/ Partial).
 Include - Platform/Jacket Removal
- Super-Structure
- Production Facilities
- Pipelines
- Wells plugging
 Experience - Based on the Crane Barge Rates &
Transportation Barge Rates
(Study shows that the cost of Platform removal
may be similar to that of installation costs)
- Drilling Rigs Rates and Number of wells

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4. Projects Lifecycle
Pre-Dev Build-Up Plateau Decline Abandon

PRODUCTION
ENVELOP

Time
POTENTIAL PROJECTS : Funding Requirements
NEW PROJECTS : High Capital Spending
YOUNG PROJECTS : Cash Generating
AGEING PROJECTS : Self Financing

ACQUISITION OPERATIONS & MAINTENANCE ABANDONMENT:

Cash Sink

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