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How the benefits are calculated:

Reduced Maintenance Costs
Calculated as a percentage of the Project CAPEX, the benefits are derived from:

  • Reductions in the need for re-work during the EXECUTE phase;

  • Operations contributions to the design process (operability);

  • Reduction in Spare Parts requirements (improved maintainability);

  • Reductions in Project manpower costs due to embedding Operations personnel in Project.

Typically, savings of between 2.5% and 4% (approximately $20m per year) can be realized.

Reduced Spare Parts Costs
Calculated as a percentage of the Project CAPEX, the benefits are derived from:

  • Rationalisation of the spare parts inventory for the first 2yrs operation;

  • Commensurate reduction in Supply Chain costs for replacements;

  • Commensurate reduction in logistics (warehousing/labour) costs;

Typically, initial savings of between 0.5% and 1.5% (approximately $10m) on CAPEX and a reduction in OPEX of $2.5m per year can be realized.

 

Improved Production Performance
Recent industry studies have determined that about 60% of lost production in the ramp-up phase is due to reliability related problems such as equipment failures.

It is not unreasonable to assume then, that implementing OR&A would improve operability (production output) by some 5% in the first year of production and that this would typically equate to approximately $3.5m, calculated as follows:

100,000 barrels/day x 347** days x 5% x $40 = $69.4m

(**365 days x 95% plant availability = 347 days)

Assuming production is deferred rather than lost, at an interest rate of 5%, such an improvement would save some $3.5m per year in interest payments alone.

Further benefits

  • Reduced Energy Consumption from better maintained equipment (typically 3% - 14% lower);

  • Reduced downtime for scheduled, unscheduled and breakdown maintenance (typically 30% to 60% lower);

  • Reduced waste through improved quality of product (typically 5% - 15%);

However, because these costs vary from business to business, these savings cannot be quantified and are therefore not included in the calculations.

Summary of Calculations:

Item

Cashflow ($ million / yr)

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Maintenance Costs

0

$20

$20

$20

$20

$20

Spare Parts (CAPEX and OPEX)

0

$12.5

$2.5

$2.5

$2.5

$2.5

Deferred Production

0

$3.5

$3.5

$3.5

$3.5

$3.5

OR&A Program Costs

$1.1

$1.1

$1.1

$1.1

$1.1

0

Sub –Total

$1.1

$37.1

$27.1

$27.1

$27.1

$26.0

Discount Factor (12%)

1.00

0.88

0.77

0.68

0.60

0.53

Annual NPV

$1.1

$32.6

$20.9

$18.4

$16.3

$13.8

Total Cost of implementing OR&A

$5.5

million

 

 

 

 

NPV

$103.1

million

 

 

 

 

Calculated Return Ratio (NPV / OR&A)

18.7 : 1

 

 

 

 

 

Conclusion:

The calculations show that for every $1 invested in OR&A a company will typically realize a return of almost $19, or expressed as a ratio of return, 19:1 on the original investment in deploying OR&A on their project. If the NPV calculated above were taken to be losses (due to a failure to deploy OR&A) this equates to almost 10% of lost value over the first 5 years (2% per year).

Another way of looking at the cost of OR&A is to consider the actual cost in terms of lost production revenue:

 

Total Estimated Cost of doing OR&A (typical) = $5.5m  ......  or just 32 hours lost Production Revenue

 

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