Cost Estimation & Control

FTC

FTC: A Key Metric in Oil & Gas Development

In the world of oil and gas exploration and development, every decision carries significant financial weight. Accurately predicting project costs and timelines is paramount to successful project management and profitability. One crucial metric employed for this purpose is the Forecast to Completion (FTC).

What is FTC?

FTC refers to the projected total cost of a project from its current stage until its completion. It's a dynamic estimate that evolves as the project progresses, incorporating updates on actual spending, remaining work, and potential risks or challenges.

Why is FTC Important in Oil & Gas?

  • Financial Planning: FTC provides a clear picture of the anticipated financial requirements for project completion, allowing for better budgeting and resource allocation.
  • Project Management: By tracking FTC, project managers can identify potential cost overruns or delays early on, enabling them to implement corrective actions to stay within budget and schedule.
  • Investment Decisions: Investors rely on FTC to assess the financial viability of projects and make informed investment decisions.
  • Risk Assessment: FTC incorporates risk assessment, considering potential uncertainties and their impact on project cost and timeline.

Components of FTC:

  • Actual Costs: The actual expenses incurred on the project up to the current point in time.
  • Estimated Remaining Costs: This component considers the estimated cost of completing the remaining work, factoring in current market conditions, resource availability, and potential risks.
  • Contingency: A buffer added to account for unforeseen events or changes in project scope.

Benefits of Utilizing FTC:

  • Improved Accuracy: By continually updating the FTC, project teams can refine their cost and schedule predictions, leading to more accurate estimates.
  • Enhanced Transparency: FTC provides a clear and transparent view of project finances, fostering trust and understanding among stakeholders.
  • Early Warning System: Fluctuations in FTC can serve as an early warning system for potential issues, allowing for timely interventions.

Challenges in FTC:

  • Data Accuracy: Obtaining accurate data on actual costs and remaining work is crucial for reliable FTC estimations.
  • Risk Assessment: Accurately quantifying and assessing risks can be challenging, potentially impacting the accuracy of FTC.
  • Market Volatility: Fluctuations in oil and gas prices and other market factors can influence project costs and affect FTC estimations.

Conclusion:

FTC plays a critical role in oil and gas project management by providing a comprehensive financial overview and facilitating proactive decision-making. By understanding the dynamics of FTC and its benefits, project teams can enhance their financial planning, risk assessment, and overall project success. As the oil and gas industry continues to evolve, the use of FTC will remain crucial for navigating the complexities of project development and ensuring profitability.

Test Your Knowledge

FTC Quiz:

Instructions: Choose the best answer for each question.

1. What does FTC stand for in the context of oil and gas development? a) Future Total Costs b) Forecast to Completion c) Final Total Cost d) Financial Tracking and Control

Answer

b) Forecast to Completion

2. Which of the following is NOT a benefit of utilizing FTC? a) Improved accuracy of cost and schedule predictions b) Enhanced transparency in project finances c) Early warning system for potential issues d) Increased risk of project delays

Answer

d) Increased risk of project delays

3. What is a key component of FTC that accounts for unforeseen events? a) Actual Costs b) Estimated Remaining Costs c) Contingency d) Market Volatility

Answer

c) Contingency

4. Which of the following factors can impact the accuracy of FTC estimations? a) Data accuracy b) Risk assessment c) Market volatility d) All of the above

Answer

d) All of the above

5. What is the primary purpose of FTC in oil and gas project management? a) To monitor project progress and identify potential delays b) To provide a comprehensive financial overview of a project c) To assess the environmental impact of a project d) To determine the profitability of a project

Answer

b) To provide a comprehensive financial overview of a project

FTC Exercise:

Scenario: An oil and gas project is currently in its drilling phase. The actual costs incurred so far are $50 million. The estimated remaining costs for drilling and completion are $30 million. The project team has also allocated a 10% contingency for potential risks.

Task: Calculate the current FTC for this project.

Exercice Correction

Here's how to calculate the FTC:

1. Estimated Remaining Costs: $30 million

2. Contingency: 10% of (Actual Costs + Estimated Remaining Costs) = 10% of ($50 million + $30 million) = $8 million

3. FTC: Actual Costs + Estimated Remaining Costs + Contingency = $50 million + $30 million + $8 million = $88 million

Therefore, the current FTC for this project is $88 million.

Books

  • Project Management for the Oil and Gas Industry by John R. Meredith and Samuel J. Mantel Jr. (This book provides comprehensive coverage of project management principles relevant to oil and gas, including cost estimation and forecasting).
  • Cost Engineering in the Oil and Gas Industry by William H. Asquith (This book focuses specifically on cost engineering techniques used in oil and gas projects, offering insights into cost estimation and budgeting).
  • Petroleum Engineering Handbook edited by Jerry J. S. Sorenson (This comprehensive handbook provides information on various aspects of petroleum engineering, including exploration, drilling, production, and project management, which are relevant to FTC).

Articles

  • "Forecast to Completion: A Key Metric for Oil & Gas Projects" by [Your Name] (This is the article you have provided. You can use this as a starting point for your research).
  • "Managing Cost in Oil and Gas Projects: A Guide to Best Practices" by [Author] (This article might discuss best practices for cost management, including the use of FTC).
  • "The Importance of Accurate Forecasting in Oil & Gas Development" by [Author] (This article explores the significance of accurate forecasting in oil and gas projects, which is closely linked to FTC).

Online Resources

  • Society of Petroleum Engineers (SPE): This professional organization offers a wealth of resources and publications related to oil and gas development, including information on project management and cost estimation.
  • American Petroleum Institute (API): API offers resources and standards for the oil and gas industry, including guidelines for project management and cost control.
  • Oil & Gas Journal: This industry publication provides news and analysis on the oil and gas industry, including articles on project development and cost management.
  • Project Management Institute (PMI): PMI offers resources and certifications for project managers, including information on cost management and forecasting.

Search Tips

  • Use specific keywords like "FTC oil and gas", "forecast to completion oil and gas", "cost estimation oil and gas projects", and "project management oil and gas".
  • Refine your search by adding specific project phases (e.g., exploration, drilling, production) or project types (e.g., offshore, onshore).
  • Explore different search operators like "site:spe.org" to limit your search to specific websites.

Techniques

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