Capital Cost Estimating Q&A

Capital Cost EstimatingCapital Cost EstimatingQ&AQ&A

Note to ReaderNote to Reader

This presentation was prepared for This presentation was prepared for the purposes of answering e-mail the purposes of answering e-mail questions from the prior year. This questions from the prior year. This years version may look years version may look substantially different.substantially different.

Question 1Question 1

““What exactly is a ‘factored What exactly is a ‘factored equipment estimate’ ?“equipment estimate’ ?“

What’s a “base cost”, “bare module What’s a “base cost”, “bare module cost” and what’s included in the cost” and what’s included in the latter?latter?

What factors are applied to get a total What factors are applied to get a total estimate of the plant? estimate of the plant?

What do these factors take into What do these factors take into account?account?

EstimateEstimate

TOTAL TOTAL PROJECTPROJECT

COSTCOST

From Equipment From Equipment Price to DFCPrice to DFC

Tanks and Vessels Tanks and Vessels Columns and TraysColumns and Trays Pumps and CompressorsPumps and Compressors ExchangersExchangers HeatersHeaters

x x FactorsFactors

• Plus Off SitesPlus Off Sites, , ie Piperacks,Rail ie Piperacks,Rail Spurs, Tank Farms Spurs, Tank Farms etcetc

Direct Field Direct Field CostCost

Direct Field Cost (DFC)Direct Field Labour (DFL)

Indirect Field Cost (IFC)

Home Office Engineering

Total Project Cost (ITC)Allowances

0.25 x DFC

1.0 to 1.6 x DFL 0

.25

x

DFC

Equipment PurchasePrice Equipmen

t Factor“Off Sites” Cost

•DIRECT FIELD COSTSDIRECT FIELD COSTS

•Equipment CostEquipment Cost

•bulk materials & labour to bulk materials & labour to installinstall

•off-sites (pipe racks, rail spurs off-sites (pipe racks, rail spurs …)…)

•INDIRECT FIELD COSTSINDIRECT FIELD COSTS

•engineering, freight, engineering, freight, insurance, overheadinsurance, overhead

•CONTINGENCY AND FEESCONTINGENCY AND FEES

•first fill of plant, taxes, dutiesfirst fill of plant, taxes, duties

•escalationescalation

Direct Field Cost (DFC)Direct Field Labour (DFL)

Indirect Field Cost (IFC)

Home Office Engineering

Total Project Cost (ITC)Allowances

0.25 x DFC

1.0 to 1.6 x DFL

0.2

5 x

DFC

Equipment PurchasePrice Equipment

Factor

“Off Sites” Cost

EstimateEstimate•DIRECT FIELD COSTSDIRECT FIELD COSTS

•Equipment CostEquipment Cost

•bulk materials (piping, valves, bulk materials (piping, valves, instruments) & labour to installinstruments) & labour to install

•off-sites (pipe racks, rail spurs off-sites (pipe racks, rail spurs …)…)

•INDIRECT FIELD COSTSINDIRECT FIELD COSTS

•engineering, freight, engineering, freight, insurance, overhead, const insurance, overhead, const supervisionsupervision

•CONTINGENCY AND FEESCONTINGENCY AND FEES

•first fill of plant, taxes, dutiesfirst fill of plant, taxes, duties

•escalationescalation

TOTAL TOTAL PROJECTPROJECT(CAPITAL)(CAPITAL)

COSTCOST

Method 1: Lang Factored Method 1: Lang Factored EstimateEstimate

Total Capital Cost Total Capital Cost ==

FFlang lang * (Sum Of * (Sum Of Purchased Cost of Purchased Cost of Equipment)Equipment)

FFlang lang = 4.74 for fluid processing plant= 4.74 for fluid processing plant

Method 2: Equipment Cost Method 2: Equipment Cost FactorFactor

Direct Field Cost (DFC)Direct Field Labour (DFL)

Allowances

Indirect Field Cost (IFC)

Home Office Engineering

Total Project Cost (ITC)

0.25 x DFC

1.0 to 1.6 x DFL 0.2

5 x

D

FC

Equipment PurchasePrice X

Equipment Factor

“Off Sites” Cost

1.18 x

Direct Field Cost (DFC)Direct Field Labour (DFL)

Allowances

Indirect Field Cost (IFC)

Home Office Engineering

Total Project Cost (ITC)

0.25 x DFC

1.0 to 1.6 x DFL

0.2

5 x

DFC

Equipment PurchasePrice X

EquipmentFactor“Off Sites” Cost

1.18 x

From Equipment From Equipment Price to “Direct Price to “Direct

Field Cost”Field Cost”

Tanks and Vessels Tanks and Vessels Columns and TraysColumns and Trays Pumps and CompressorsPumps and Compressors ExchangersExchangers HeatersHeaters

• Plus Off SitesPlus Off Sites, , ie Piperacks,Rail ie Piperacks,Rail Spurs, Tank Farms Spurs, Tank Farms etcetc

Direct Field Direct Field CostCost

x x FactorsFactors

““Off SitesOff Sites””

Rail Spurs

Office Bldg

Pipe Racks

Cooling Tower

Rail Car Loading

Steam Boilers

Fire Water Sys

Nitrogen Plant

InsideBattery Limits

Direct Field Cost (DFC)Direct Field Labour (DFL)

Allowances

Indirect Field Cost (IFC)

Home Office Engineering

Total Project Cost (ITC)

0.25 x DFC

1.0 to 1.6 x DFL

0.2

5 x

DFC

Equipment PurchasePrice X

EquipmentFactor“Off Sites” Cost

1.18 x

Direct Field Cost (DFC)Direct Field Labour (DFL)

Allowances

Indirect Field Cost (IFC)

Home Office Engineering

Total Project Cost (ITC)

0.25 x DFC

1.0 to 1.6 x DFL

0.2

5 x

DFC

Equipment PurchasePrice X

EquipmentFactor“Off Sites” Cost

1.18 x

Equipment FactorEquipment Factor

EQUIPMENTFACTOR

MODULECOST

PURCHASE COST

Direct Field Cost (DFC)Direct Field Labour (DFL)

Allowances

Indirect Field Cost (IFC)

Home Office Engineering

Total Project Cost (ITC)

0.25 x DFC

1.0 to 1.6 x DFL

0.2

5 x

DFC

Equipment PurchasePrice X

EquipmentFactor“Off Sites” Cost

1.18 x

Equipment FactorsEquipment Factors

Shop Fab. Shop Fab. VesselsVessels

CompressorsCompressors ExchangersExchangers Fired HeatersFired Heaters PumpsPumps Material Handling Material Handling

EquipmentEquipment

2.0 - 2.52.0 - 2.5

1.5 - 2.51.5 - 2.5

1.7 - 2.51.7 - 2.5

1.7 - 2.51.7 - 2.5

2.5 - 3.52.5 - 3.5

1.5 - 3.01.5 - 3.0

Direct Field Cost (DFC)Direct Field Labour (DFL)

Allowances

Indirect Field Cost (IFC)

Home Office Engineering

Total Project Cost (ITC)

0.25 x DFC

1.0 to 1.6 x DFL 0.2

5 x

D

FC

Equipment PurchasePrice X

Equipment Factor

“Off Sites” Cost

1.18 x

Method 3: The CAPCOST Method 3: The CAPCOST ApproachApproach

Equipment Parameters (Pressure, MOC, Size, Hp …)

“Base Cost” = Purchase Cost of Equipment - in Carbon Steel and 0 barg

BARE MODULE COST (Directs and Indirects) - installed equipment in actual materials and actual pressure

Bare Module Factor = f (Factorpressure, Factormaterial)

MODULE COST OF PLANT - for expansion to an existing Plant -contingency 15%, fees 3%

Module Factor = 1.18

GRASS ROOTS COST OF PLANT - infrastruction (utilities, off-sites aux. Buildings, product storage, loading and unloading facilities ...)

Grass Roots Factor = 1.30 CHEE470 StopsHere

Which One Do We Want?

Determine Equipment Determine Equipment CostCost

Fixed Tube exch with28 m2 = $6500

Convert ToToday’s $’s using the CEPCI value

Note: Price for Carbon Steel Construction and 0 Bar(g)

Factor to Today’s CostFactor to Today’s Cost

$6500 * (1999 CECPI / 1996 CECPI) = today’s cost

$6500 x (390.6 / 381.7) = $6650 in 1999

Pressure Factor (FPressure Factor (Fpp))

Pressure FactorFp = 1.14

Material Factor (FMaterial Factor (Fmm))

Bare Module Factor FBare Module Factor FBMBM

Fp Fm

1.14 x 3 = 3.42

Therefore FBM = 7

Bare Module Cost= Base Cost x FBM

= $6650 x 7= $46,550

Nowhere is the purchased cost of the equipment (at design press and materials)

Module Cost Of PlantModule Cost Of Plant

Add Contingency and Fees (building Add Contingency and Fees (building permits, environmental permits etc.)permits, environmental permits etc.)

Module Cost = 1.18 Module Cost = 1.18 (of Bare Module (of Bare Module Cost for all equipment)Cost for all equipment)

Module Cost = 1.18 x $46,550 = Module Cost = 1.18 x $46,550 = $ $ 54,90054,900

Question 2Question 2

What is a capital cost?What is a capital cost?

Capital CostCapital Cost

What’s “Capital ?”What’s “Capital ?”– Capital is the money required to build Capital is the money required to build

a plant or facilitya plant or facility

It’s separated from “Expense” It’s separated from “Expense” money because of the Tax money because of the Tax implications imposed by Revenue implications imposed by Revenue Canada, IRS, etc.Canada, IRS, etc.

Facility TimelineFacility Timeline

ConceptualEngineering

Detailed Engineering& Construction

Start-up

Capital $

Expense $

Expense $

Capital Cost

Facility Creation Facility Operation

Expense $- Operating Expenses-Depreciation

Capital vs ExpenseCapital vs Expense

Once the plant is running Once the plant is running ‘Expenses’ are small items or costs ‘Expenses’ are small items or costs which are incurred yearly, or have which are incurred yearly, or have about a 1 year life.about a 1 year life.– i.e. Software, Office supplies, wages, i.e. Software, Office supplies, wages,

advertising, heat, lighting, ...advertising, heat, lighting, ... When Calculating Yearly Income When Calculating Yearly Income

Subtract your Expenses From Your Subtract your Expenses From Your IncomeIncome

Capital vs ExpenseCapital vs Expense

‘‘Capital’ are expensive items or items Capital’ are expensive items or items which have more than a year of life.which have more than a year of life.– i.e. House, lawnmower, TV, computer, i.e. House, lawnmower, TV, computer,

chemical plant equip, first fill of chemicalschemical plant equip, first fill of chemicals Revenue Canada etc. only allow you to Revenue Canada etc. only allow you to

subtract a % of the Capital every year subtract a % of the Capital every year to account for the wearing out of the to account for the wearing out of the facility (depreciation). facility (depreciation). – This is called the “Capital Cost Allowance”This is called the “Capital Cost Allowance”

Capital vs ExpenseCapital vs Expense

Capital Cost Allowance ( CCA )Capital Cost Allowance ( CCA )– Works Like a Bank AccountWorks Like a Bank Account– Revenue Canada allow a % of the Revenue Canada allow a % of the

remaining asset value to be claimedremaining asset value to be claimed

RemainingAsset Value

Time (years)

CCA ClassesCCA Classes

Taxable IncomeTaxable Income Income That’s Taxable (Net Income)Income That’s Taxable (Net Income)

Taxable Income = Income - Expenses Taxable Income = Income - Expenses - CCA- CCA

Can’t use CCA if Expenses are greater Can’t use CCA if Expenses are greater than Income (can’t use CCA to claim than Income (can’t use CCA to claim a loss)a loss)

CCA can be ‘banked’ for later years CCA can be ‘banked’ for later years where profit is occurringwhere profit is occurring

Small Business Tax- Small Business Tax- RevenueRevenue

Small Business Tax - Small Business Tax - ExpensesExpenses

CCA

Capital - The PointCapital - The Point

Capital is only allowed to be Capital is only allowed to be ‘depreciated’ over years and thus ‘depreciated’ over years and thus it’s ability to minimize taxable it’s ability to minimize taxable income is limited.income is limited.

Expenses are claimed in the year Expenses are claimed in the year they’re paid. They’re better for they’re paid. They’re better for minimizing your taxes.minimizing your taxes.

The Games People playThe Games People play

The Capital Cost EstimateThe Capital Cost Estimate

The tax implications of Capital money The tax implications of Capital money requires that you know how much requires that you know how much Capital was spent on any asset.Capital was spent on any asset.

The business financial analysis (NPV The business financial analysis (NPV etc.) requires that you know the etc.) requires that you know the Capital Cost and the Operating Cost Capital Cost and the Operating Cost well ahead of actually spending any well ahead of actually spending any significant amounts of money.significant amounts of money.

Capital Cost EstimateCapital Cost Estimate

Summary:Summary:

The cost to initially build the facility The cost to initially build the facility which will be depreciated over which will be depreciated over time.time.

Question 3 -CAPCOST - Question 3 -CAPCOST - arrggh!arrggh!

““When our tube/shell design When our tube/shell design pressures are below those which pressures are below those which CAPCOST recognizes, do we simply CAPCOST recognizes, do we simply take the minimum CAPCOST take the minimum CAPCOST pressure and size on that basis?”pressure and size on that basis?”

Off The Shelf ItemsOff The Shelf Items Piping, Valves, Pumps and most Piping, Valves, Pumps and most

equipment have been standarized in equipment have been standarized in design pressures of the connecting design pressures of the connecting FlangeFlange

Standards are called 150, 300, 600, 900, Standards are called 150, 300, 600, 900, 1500, 2500 “lb” flange ratings. 1500, 2500 “lb” flange ratings. – A 150lb rating A 150lb rating 150 psig rating, 150 psig rating,

temperature is important in the ultimate temperature is important in the ultimate strength of the itemstrength of the item

– Along with standard flanges are standard Along with standard flanges are standard pipe wall thickness (Sch 40, Sch 80 etc.)pipe wall thickness (Sch 40, Sch 80 etc.)

Max Pressure vs Temp

0

200

400

600

800

1000

1200

1400

1600

0 500 1000

Temp (°F)

Pre

ssu

re (

psi

g) 150 lb Rating

300 lb Rating

600 lb Rating

300 lb 304 SS

600 lb 304 SS

Flange RatingFlange Rating

Heat Exchanger StandardsHeat Exchanger Standards

TEMA - Tubular Exchanger TEMA - Tubular Exchanger Manufacturers AssociationManufacturers Association– dictates minimum requirements for dictates minimum requirements for

exchanger mechanical designexchanger mechanical design Legislation does not require TEMA Legislation does not require TEMA

standards be used.standards be used.

ASME- Pressure Vessel ASME- Pressure Vessel StandardsStandards

ASME CodeASME Code– It started in Chicago after a major It started in Chicago after a major

explosion in a shoe factory that had a explosion in a shoe factory that had a boiler. The boiler explosion caused the boiler. The boiler explosion caused the government to start regulating pressure government to start regulating pressure vessels (including boilers). vessels (including boilers).

– A tool for regulating manufacturers of A tool for regulating manufacturers of pressure vessels, heating exchangers, pressure vessels, heating exchangers, and piping, not pumps, not compressors and piping, not pumps, not compressors (no rotating equipment)(no rotating equipment)

ASME- Pressure Vessel ASME- Pressure Vessel StandardsStandards

– Since the explosion in Chicago codes Since the explosion in Chicago codes were developed for the guidance in were developed for the guidance in the calculation of pressure vessels, the calculation of pressure vessels, tables of metal strength vs temptables of metal strength vs temp

– Safety factor of 4 has historically Safety factor of 4 has historically been applied to the mechanical been applied to the mechanical strength of metal, recently (this year) strength of metal, recently (this year) it was reduced to 3.5it was reduced to 3.5

ASME Code SectionsASME Code Sections

I - Power BoilersI - Power Boilers

II - Materials (properties i.e. allowable stresses)II - Materials (properties i.e. allowable stresses)

III - Nuclear Power PlantsIII - Nuclear Power Plants

IV - Heating BoilersIV - Heating Boilers

V - Non Destructive ExaminationV - Non Destructive Examination

VII - Guidelines for the Care and Operation of VII - Guidelines for the Care and Operation of Heating BoilersHeating Boilers

IX - Welding and Brazing QualificationsIX - Welding and Brazing Qualifications

X - Fiber-Reinforced Plastic Pressure VesselsX - Fiber-Reinforced Plastic Pressure Vessels

XI - Rules for Inservice Inspection of Nuclear Power XI - Rules for Inservice Inspection of Nuclear Power Plant ComponentsPlant Components

Minimum Design and Minimum Design and CAPCOSTCAPCOST

Allowing CAPCOST to choose a Allowing CAPCOST to choose a minimum makes sense since the minimum makes sense since the manufacturer would do the same.manufacturer would do the same.

Question 4 - Unknown Question 4 - Unknown EquipmentEquipment

To size the reactor cooling jacket To size the reactor cooling jacket do we send you our data? Is there do we send you our data? Is there significant expense in the jacket?significant expense in the jacket?

•Jacket cost is about $35,000 for the reactorJacket cost is about $35,000 for the reactor.

CAPCOST - User Added Eq.CAPCOST - User Added Eq.

Treat as an Treat as an additional additional piece of piece of equipmentequipment

Bare Bare Module Module factor is factor is irrelevantirrelevant

Question 5 - Storage Question 5 - Storage TanksTanks

How do you do the costing for the How do you do the costing for the cone roof storage tanks?cone roof storage tanks?

User Added - Storage User Added - Storage TanksTanks

$239,000

Multiply by 2 to get “bare module cost”

Adding Storage TankAdding Storage Tank

Question 5 -Agitator Question 5 -Agitator

““How can we account for the How can we account for the agitator (shaft, seal + motor) cost agitator (shaft, seal + motor) cost in our estimate?”in our estimate?”

Reactor DiagramReactor Diagram

Agitator CostsAgitator Costs

$65,000Multiply by 3.0 to get “bare module cost” in CAPCOST

The Final ScreenThe Final Screen