IHS CERA Operating Costs Analysis Forum – Upstream

IHS CERA Operating Costs Analysis Forum – Upstream advisory service responds to the needs of upstream industry clients who seek to control operating costs in the current and foreseeable era of rising expenditures. The forum mainly serves to determine upstream project development costs through the application of an Upstream Operating Cost Index (UOCI), which is designed to capture the elements driving the modern cost environment. The UOCI tracks the lifecycle cost for a representative set of project portfolios and calculates weighted values for various inputs that have, in recent years, caused upstream project costs to skyrocket. In doing so, the index accounts for such factors as:

• Operations labor scarcity
• Rising cost of rigs, spares, chemicals, helicopters, vessels and power
• Increased capital costs
• Competition with downstream industry for resources

Armed with this knowledge, clients can achieve a clearer picture of how specific inputs affect their portfolio’s total costs. Moreover, IHS CERA analysts can use the indices to show how certain costs are interrelated and where savings can occur to offset increased fees elsewhere. Forum members are privy to comprehensive cost data, including an analysis of the key cost drivers, regional cost comparisons and long-term forecasts.

Subscribers to this service receive:

• Quarterly reports
• Workshops
• IHS CERA website access
• Telephone and email access to research staff

The forum membership provides access to the unique, timely IHS CERA analysis and insight on project operating costs, direction and the strategic implications associated with changes in the global cost environment. IHS CERA development and monitoring of indicators is specifically designed to reflect the critical issues in upstream project development which enables forum members to better understand strategic issues such as

• What is the impact of rising project costs on the overall cost of operations globally?
• What is the impact of rising project costs on the near-term cost of operations?
• How does a firm's specific portfolio of projects compare with IHS CERA Upstream Operating Costs Index (UOCI)?
• What is the real versus estimated rate of inflation for large projects?

At the core of IHS CERA Operating Costs Analysis Forum – Upstream is the Upstream Operating Cost Index (UOCI) for monitoring the current state of the global upstream cost environment. The UOCI defines and tracks a series of marketplaces that drive cost changes. IHS CERA experts apply their knowledge to contextualize any changes in the index within larger, systemic shifts such as industry trends or geopolitical shocks.

The tools used to develop and analyze the UOCI also provide the ability to forecast the potential impact of long-term trends in project fundamentals. The UOCI leverages the framework of the IHS Global Scenarios Initiative, using its three robust scenarios to predict future market changes.

The Operating Costs Analysis Forum-Upstream delivers value through four main components.

Quarterly Reports

• Track the current state of industry costs using the propietary IHS CERA UOCI and other indexes
• Analyze the drivers behind changes in industry cost
• Describe the near- and long-term implications of current and projected changes in costs
• Provide comparative analysis of cost trends across regions and development types
• Project long-term cost trends using a scenario-based process

Workshops
In the spring and autumn, forum members convene for a half-day workshop to discuss the most recent forum research and to debate the factors influencing long-term cost trends. The results of these debates guide the next round of IHS CERA analysis and modeling.

Forum Website Access
Forum members have access to the forum website, a reference tool that delivers selected research analysis and findings, summaries and workshop proceedings, project schedules and logistics information.

Telephone Access to Research Staff
Forum members have access to IHS CERA research staff for telephone consultation during normal business hours.

IHS CERA Operating Costs Analysis Forum – Upstream relies on an Upstream Operating Cost Index (UOCI) that consistently tracks the individual component costs contained in a representative set of project portfolios similar to the way a Consumer Price Index (CPI) measures individual item costs to arrive at a total cost for a basket of goods. As component costs—such as chemicals, insurance, labor rates—rise and fall, so will the lifecycle cost of a given set of project portfolios. The difference between our UOCI and that of a CPI, however, is that our methodology assigns a ratio and influence for each component, providing a unique real-world context for total portfolio costs.

The process for deriving our indices is as follows:

• A representative portfolio of projects is defined
• Each project is modeled to the equipment level of definition
• Each project is then priced using a multiyear database of industry costs
• Individual project values are then aggregated into indices with components compared and analyzed.

Using this methodology, IHS CERA can solve questions involving interrelated component costs, such as:

• How would a 10% rise in labor rates impact total portfolio costs?
• What decrease in chemical costs would have to occur to compensate for such a rise in labor rates?

• Jeff Kelly
• Pritesh Patel
• Candida Scott
• Jordan Frazier
• Omid Zareei