Project Management in the Oil and Gas Industry

4.2 Cost 
Types
For the owner, there are different types of costs for construction projects, 
including the cost of assets and the capital cost, which include the cost of 
the initial composition of the facilities of the project. That cost is described 
as follows:
• Cost of land and property registration procedures
• Planning and feasibility studies
• Engineering activities and studies
• Construction materials, equipment, and supervision on site
• Insurance and taxes during the project
• The cost of the owner’s office
• The cost of other equipment that is not used in construction, 
such as private cars to transport owner engineers
• Inspections and tests
The cost of maintenance and operation in each year of the life of the 
project includes the following:
• Leasing 
land
• Employment and labor wage
• Materials required for maintenance, repairs, and annual 
renewal
• Taxes and insurance
• Other costs of the owner

---

116 
Project Management in the Oil and Gas Industry
The cost values of each of the preceding items vary according to the 
type, size, and location of the project and the structure of the organization 
presence for other considerations.
We should not forget that the owner’s goal is to reduce the total cost of 
the project to be consistent with the objective of the investments.
The highest value in the project cost is the cost of construction in the 
case of real estate and building structure. But, in the case of industrial 
building and the petrochemical industry, the cost of civil and structure 
work is almost small relative to other mechanical and electrical equipment. 
For example, the cost of a concrete foundation for a power turbine may 
cost 30,000 USD and the power turbine may cost more than five million 
USD. The other example is for nuclear plant or power generation projects.
When we calculate the cost from the viewpoint of the owner, it is very 
important to calculate the cost of operations and maintenance in each year 
of the life of the project for each of the alternatives available in the design 
and the cost of the life cycle of the project as a whole.
In calculating the estimated cost of the project to develop its own budget, 
we must point out the limits of deviation and the cost of risk or an unex-
pected event during the execution of the project. The percentage of risk has 
to be calculated for each item or in proportion of the total final cost. The 
calculation of the cost of risks depends on past experience and anticipated 
problems during the implementation of the project and increased costs of 
emergency often occur as a result of each of the following:
• Change in design
• Difference in the schedule and an increase in the time of the 
project
• Administrative changes such as increased salaries
• Special circumstances at the site, such as some unexpected 
obstacles or defects in the soil in some locations
• Special permits to work during the construction