Project Close-Out and Start- Up Costs

Project Close-Out and Start-Up Costs: Bridging the Gap Between Completion and Revenue in Oil & Gas

In the complex world of oil and gas projects, the journey from concept to commercial production is far from straightforward. While project implementation focuses on building and installing assets, the transition to revenue generation involves a crucial phase often overlooked: Project Close-Out and Start-Up.

This phase encompasses the activities required to transition a completed project from construction to operational status, paving the way for revenue generation. It involves not only completing final construction work but also ensuring the project is safely and efficiently handed over to the operations team.

Project Close-Out:

• Project Completion: This includes finishing all construction work, commissioning equipment, and conducting final testing to ensure the project meets design specifications.
• Documentation and Hand-Over: This involves compiling all project documentation, including technical manuals, operating procedures, and safety protocols, for the operational team.
• Training: Training the operational team on how to safely and effectively operate the new equipment and facilities is vital.
• Regulatory Compliance: Ensuring the project meets all relevant environmental, safety, and regulatory requirements is crucial.

Start-Up Costs:

While the focus of Project Close-Out is on transitioning the project from construction to operations, Start-Up Costs encompass the expenses incurred during the initial operational phase, leading to revenue generation. These costs can be broadly classified into:

• Capital Costs: These include expenses incurred on final commissioning, initial inventory stocking, and any additional equipment or infrastructure required for the operational phase.
• Operating Costs: These cover expenses related to initial production ramp-up, operational testing, and initial personnel costs.

The Costly Bridge:

Project Close-Out and Start-Up costs are often underestimated or overlooked during the initial planning stages. This can lead to significant cost overruns and delays in reaching profitability.

Estimated Extra Costs:

The estimated extra costs during this phase encompass both capital and operating costs incurred during the period from the completion of project implementation to the beginning of normal revenue earnings on operations. These costs can include:

• Commissioning and Testing: Commissioning the completed facilities and conducting final performance tests require resources and manpower.
• Initial Production Ramp-Up: Production often starts at a slower rate than the ultimate capacity, leading to lower revenues in the initial months.
• Troubleshooting and Optimization: The early operational phase often requires troubleshooting and optimization of equipment and processes.
• Operational Workforce Training: Training new operational personnel and establishing the operational team takes time and resources.

Strategies for Managing Costs:

• Early Planning: Identifying and budgeting for potential close-out and start-up costs early in the project lifecycle can prevent financial surprises.
• Detailed Cost Estimation: Thorough cost estimations should consider all aspects of the transition phase, including both capital and operating expenses.
• Efficient Project Management: Efficient project management can minimize delays and optimize resource utilization, leading to reduced costs.
• Lean Operations: Implementing lean operational practices can optimize resource allocation and minimize waste, reducing unnecessary start-up expenses.

Conclusion:

Project Close-Out and Start-Up costs are often hidden in plain sight. Failing to address these costs can significantly impact the project's overall profitability. By recognizing their importance and implementing sound planning and management strategies, oil and gas companies can navigate this critical transition phase smoothly and efficiently, achieving their revenue generation targets.