Capital Costs Analysis Forum - Upstream

IHS CERA Capital Costs Analysis Forum - Upstream service responds to the needs of upstream industry clients who seek to control capital costs in the current and foreseeable era of rising project expenditures. The forum mainly serves to determine upstream project development costs through the application of an Upstream Capital Cost Index (UCCI) designed to capture the precipitating elements behind the modern cost environment. The UCCI tracks the purchase price for a representative set of project portfolios and calculates weighted values for various inputs that have caused upstream project costs to skyrocket in recent years. The indices account for such factors as:

• Engineering, procurement and construction labor scarcity
• Number of current well projects
• Rig rates
• Raw materials supply - availability of premium steel, cement, copper and diesel fuel
• Competition with downstream industry for resources

Armed with this knowledge, clients can achieve a clearer picture of how specific inputs affect total portfolio costs. IHS CERA analysts can use the UCCI to show how certain costs are interrelated and where savings can occur to offset increased fees. Forum members are privy to comprehensive cost data, including an analysis of the key drivers behind rising costs, 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

Benefits:

Forum membership provides companies with unique, timely insights concerning project costs, trends and outlooks and the strategic implications associated with changes in the global cost environment. Through building on and monitoring a set of indicators that reflect the critical issues in upstream project development, this Advisory Service helps Forum members to develop strategic responses to issues such as:

• How do investment costs vary by region? What is driving escalation in hot activity areas?
• What approaches can be used to minimize the impact on project costs?
• How does demand for goods and service vary by region, and what is the impact on regional project costs?
• Which development concepts (i.e., platform; tension leg platform; floating production, storage and offloading vessels and others) are most or least affected by specific drivers and trends?
• How do individual market movements affect total project costs? What market will most affect your project during construction?
• What is the optimal timing for project commencement to minimize investments and give best investment returns?
• What strategies can be employed to reduce project costs?

• Future cost scenarios:
  • Analysis integrating macroeconomic fundamentals with bottom-up liquid and gas capacity forecasts to develop high- and low-cost scenarios over the next one to three years
• Cost scenario insights
  • Critical insights, derived from a unique methodology, which facilitate executive decisions during the early stages of project design and execution

At the forum's core is the Upstream Capital Cost Index (UCCI), used for monitoring the current state of the global upstream cost environment, together with the methodology used to define and generate index values. IHS CERA experts apply insight and industry knowledge to frame changes in UCCI values against larger issues, such as changes in industry fundamentals or geopolitical shocks.

Likewise, the tools used to develop and analyze the indices also enable forecasting of the potential impact of long-term trends in project fundamentals. The UCCI leverages the analysis in the IHS Global Scenarios Initiative to create three robustly developed future scenarios that explore possible changes at future points in time.

IHS CERA Capital Costs Analysis Forum - Upstream membership is on an annual basis and delivers value through four main components:

Quarterly Reports

• Track current industry costs through building time-related estimates for a portfolio of projects, using a bottom-up analysis
• Analyze the drivers behind changes in the markets of the upstream industry
• Describe the near- and long-term implications of current and projected changes in costs
• Forecast short-term cost movements and 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 discussions guide the next round of analysis and modeling.

Website Access
Participants have access to the forum website, which serves as a reference tool and is where we post selected research analysis and findings, workshop proceedings and summaries, project schedules and logistics information.

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

The IHS CERA Capital Costs Analysis Forum – Upstream relies on an Upstream Capital Cost Index (UCCI) 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 (e.g., steel, insurance, gig rates) rise and fall, so will the cost of a given portfolio. The difference between our UCCI and a CPI is that our methodology assigns a ratio and influence for each component, providing a 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 using the IHS QUE$TOR™ cost-engineering tool
• 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 steel costs would have to occur to compensate for such a rise in labor rates?
  

• Pritesh Patel
• Candida Scott
• Jordan Frazier
• Omid Zareei
• Tina Pompilio