Project Management in the Oil and Gas Industry

4.4 Cash Flow Calculation
The calculation of cash flow is presented in Chapter 3. Cash flow is the real 
movement of money to and from the project. The cash flow is positive if a 
company receives money. There is a negative flow of money if the company 
pays money and the difference between positive and negative cash flow is 
called net cash flow.
In the case of the contractor, the positive cash flow is the money received 
in invoices or monthly payments. The negative cash flow is the money paid 
toward labor salary, equipment, subcontractors, and other items during 
the construction. In any project, the contractor at some period will have 
negative cash flow, so he or she should provide money as an investment. In 
the case of increasing the net cash flow, this contract is self-financed.
In general, the construction companies will work by terms of contrac-
tual reservation in the case of a lack of funding in a time period during the 
project.
4.4.1 Project Cash Flow
The cash flows are calculated according to your role. In the case that 
you are the owner, you will pay the contractor and engineering offices 
Table 4.8 Break down for engineering phase.
Activity
Percentage of the engineering cost
Design and drafting
57 %
Proposal
1%
Project Management
19%
Procurement
12%
Structural engineering
4%
Project Control, Estimating and Planning
7%

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136 
Project Management in the Oil and Gas Industry
throughout the project execution time. At the start of the operation of the 
project, the owner will gain money from the products, and, after a period 
of time the owner will obtain profits during the operation along the facili-
ties’ lifetime.
The process of cash flow during the period of the project has more than 
one phase, as shown in Figure (4.6), and is associated with the project plan 
and overall performance and cost of the project through the life cycle of 
the project overall.
The owner will pay the invoices for the preparation of feasibility studies 
and preliminary engineering studies in select stages during the first period 
of the project. When the project is in detailed design in the define phase, 
the project is increasing the number of team members on the detail design 
phase which correspondingly increases the cost.
The construction phase itself becomes a significant cost increase. In the 
construction phase, the rate of spending money is increased, as at this stage 
there will be large payments due to purchase of materials, equipment, and 
the contractor invoices and the maximum negative value at the end of the 
project and the start of the operational phase.
After operation begins and the product is sold, which increases with 
time, the negative cash flow will decrease until it becomes a positive 
cash flow.
It is worth mentioning that industrial projects, after a time period and 
according to the project design lifetime, require overhauls, maintenance, 
and rehabilitation that will decrease the profit as shown in Figure (4.6).
Figure 4.6 Cash flow along project lifetime.
Engineering
phase
Construction
phase
Start up
Maintenance
& rehabilitation
Operation
Time
Cost, $
+
–

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Project Cost Control 137