Capital Cost Estimating Q&A

1. Capital Cost EstimatingQ&A

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

3. Question 1 • “What exactly is a ‘factored equipment estimate’ ?“ • What’s a “base cost”, “bare module cost” and what’s included in the latter? • What factors are applied to get a total estimate of the plant? • What do these factors take into account?

4. Equipment Purchase Price Equipment Factor “Off Sites” Cost Direct Field Labour (DFL) Direct Field Cost (DFC) 0.25 x DFC 0.25 x DFC Indirect Field Cost (IFC) 1.0 to 1.6 x DFL Home Office Engineering Allowances Total Project Cost (ITC) From Equipment Price to DFC Estimate • DIRECT FIELD COSTS • Equipment Cost • bulk materials & labour to install • off-sites (pipe racks, rail spurs …) • INDIRECT FIELD COSTS • engineering, freight, insurance, overhead • CONTINGENCY AND FEES • first fill of plant, taxes, duties • escalation • Tanks and Vessels • Columns and Trays • Pumps and Compressors • Exchangers • Heaters TOTAL PROJECT COST x Factors • Plus Off Sites, ie Piperacks,Rail Spurs, Tank Farms etc Direct Field Cost

5. Estimate • DIRECT FIELD COSTS • Equipment Cost • bulk materials (piping, valves, instruments) & labour to install • off-sites (pipe racks, rail spurs …) • INDIRECT FIELD COSTS • engineering, freight, insurance, overhead, const supervision • CONTINGENCY AND FEES • first fill of plant, taxes, duties • escalation TOTAL PROJECT (CAPITAL) COST

6. Method 1: Lang Factored Estimate Total Capital Cost = Flang * (Sum Of Purchased Cost of Equipment) Flang = 4.74 for fluid processing plant

7. Equipment Purchase Price X Equipment Factor “Off Sites” Cost Direct Field Labour (DFL) Direct Field Cost (DFC) 0.25 x DFC 0.25 x DFC Indirect Field Cost (IFC) 1.0 to 1.6 x DFL Home Office Engineering 1.18 x Allowances Total Project Cost (ITC) Method 2: Equipment Cost Factor

8. x Factors Direct Field Cost From Equipment Price to “Direct Field Cost” • Tanks and Vessels • Columns and Trays • Pumps and Compressors • Exchangers • Heaters • Plus Off Sites, ie Piperacks,Rail Spurs, Tank Farms etc

9. Cooling Tower Rail Car Loading Rail Spurs Fire Water Sys Steam Boilers Pipe Racks Nitrogen Plant Office Bldg “Off Sites” Inside Battery Limits

10. Equipment Factor EQUIPMENT FACTOR MODULE COST PURCHASE COST

11. Equipment Factors • Shop Fab. Vessels • Compressors • Exchangers • Fired Heaters • Pumps • Material Handling Equipment 2.0 - 2.5 1.5 - 2.5 1.7 - 2.5 1.7 - 2.5 2.5 - 3.5 1.5 - 3.0

12. Equipment Purchase Price X Equipment Factor “Off Sites” Cost Direct Field Labour (DFL) Direct Field Cost (DFC) 0.25 x DFC 0.25 x DFC Indirect Field Cost (IFC) 1.0 to 1.6 x DFL Home Office Engineering 1.18 x Allowances Total Project Cost (ITC)

13. Method 3: The CAPCOST Approach Equipment Parameters (Pressure, MOC, Size, Hp …) “Base Cost” = Purchase Cost of Equipment - in Carbon Steel and 0 barg Which One Do We Want? Bare Module Factor = f (Factorpressure, Factormaterial) BARE MODULE COST (Directs and Indirects) - installed equipment in actual materials and actual pressure Module Factor = 1.18 MODULE COST OF PLANT - for expansion to an existing Plant -contingency 15%, fees 3% CHEE 470 Stops Here Grass Roots Factor = 1.30 GRASS ROOTS COST OF PLANT - infrastruction (utilities, off-sites aux. Buildings, product storage, loading and unloading facilities ...)

14. Determine Equipment Cost Note: Price for Carbon Steel Construction and 0 Bar(g) Fixed Tube exch with 28 m2 = $6500 Convert To Today’s $’s using the CEPCI value

15. Factor to Today’s Cost $6500 * (1999 CECPI / 1996 CECPI) = today’s cost $6500 x (390.6 / 381.7) = $6650 in 1999

16. Pressure Factor (Fp) Pressure Factor Fp = 1.14

17. Material Factor (Fm)

18. Bare Module Factor FBM 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)

19. Module Cost Of Plant Add Contingency and Fees (building permits, environmental permits etc.) Module Cost = 1.18 S (of Bare Module Cost for all equipment) Module Cost = 1.18 x $46,550 = $ 54,900

20. Question 2 • What is a capital cost?

21. Capital Cost • What’s “Capital ?” • Capital is the money required to build a plant or facility • It’s separated from “Expense” money because of the Tax implications imposed by Revenue Canada, IRS, etc.

22. Facility Timeline Facility Creation Facility Operation Conceptual Engineering Detailed Engineering & Construction Start-up Capital $ Expense $ Expense $ Expense $ - Operating Expenses -Depreciation Capital Cost

23. Capital vs Expense • Once the plant is running ‘Expenses’ are small items or costs which are incurred yearly, or have about a 1 year life. • i.e. Software, Office supplies, wages, advertising, heat, lighting, ... • When Calculating Yearly Income Subtract your Expenses From Your Income

24. Capital vs Expense • ‘Capital’ are expensive items or items which have more than a year of life. • i.e. House, lawnmower, TV, computer, chemical plant equip, first fill of chemicals • Revenue Canada etc. only allow you to subtract a % of the Capital every year to account for the wearing out of the facility (depreciation). • This is called the “Capital Cost Allowance”

25. Capital vs Expense • Capital Cost Allowance ( CCA ) • Works Like a Bank Account • Revenue Canada allow a % of the remaining asset value to be claimed Remaining Asset Value Time (years)

26. CCA Classes

27. Taxable Income • Income That’s Taxable (Net Income) Taxable Income = Income - Expenses - CCA Can’t use CCA if Expenses are greater than Income (can’t use CCA to claim a loss) CCA can be ‘banked’ for later years where profit is occurring

28. Small Business Tax- Revenue

29. Small Business Tax - Expenses CCA

30. Capital - The Point • Capital is only allowed to be ‘depreciated’ over years and thus it’s ability to minimize taxable income is limited. • Expenses are claimed in the year they’re paid. They’re better for minimizing your taxes. • The Games People play

31. The Capital Cost Estimate • The tax implications of Capital money requires that you know how much Capital was spent on any asset. • The business financial analysis (NPV etc.) requires that you know the Capital Cost and the Operating Cost well ahead of actually spending any significant amounts of money.

32. Capital Cost Estimate • Summary: The cost to initially build the facility which will be depreciated over time.

33. Question 3 -CAPCOST - arrggh! • “When our tube/shell design pressures are below those which CAPCOST recognizes, do we simply take the minimum CAPCOST pressure and size on that basis?”

34. Off The Shelf Items • Piping, Valves, Pumps and most equipment have been standarized in design pressures of the connecting Flange • Standards are called 150, 300, 600, 900, 1500, 2500 “lb” flange ratings. • A 150lb rating  150 psig rating, temperature is important in the ultimate strength of the item • Along with standard flanges are standard pipe wall thickness (Sch 40, Sch 80 etc.) ASME Code

35. Flange Rating

36. Heat Exchanger Standards • TEMA - Tubular Exchanger Manufacturers Association • dictates minimum requirements for exchanger mechanical design • Legislation does not require TEMA standards be used.

37. ASME- Pressure Vessel Standards • ASME Code • It started in Chicago after a major explosion in a shoe factory that had a boiler. The boiler explosion caused the government to start regulating pressure vessels (including boilers). • A tool for regulating manufacturers of pressure vessels, heating exchangers, and piping, not pumps, not compressors (no rotating equipment)

38. ASME- Pressure Vessel Standards • Since the explosion in Chicago codes were developed for the guidance in the calculation of pressure vessels, tables of metal strength vs temp • Safety factor of 4 has historically been applied to the mechanical strength of metal, recently (this year) it was reduced to 3.5

39. ASME Code Sections I - Power Boilers II - Materials (properties i.e. allowable stresses) III - Nuclear Power Plants IV - Heating Boilers V - Non Destructive Examination VII - Guidelines for the Care and Operation of Heating Boilers IX - Welding and Brazing Qualifications X - Fiber-Reinforced Plastic Pressure Vessels XI - Rules for Inservice Inspection of Nuclear Power Plant Components

40. Minimum Design and CAPCOST • Allowing CAPCOST to choose a minimum makes sense since the manufacturer would do the same.

41. Question 4 - Unknown Equipment • To size the reactor cooling jacket do we send you our data? Is there significant expense in the jacket? • Jacket cost is about $35,000 for the reactor.

42. CAPCOST - User Added Eq. • Treat as an additional piece of equipment • Bare Module factor is irrelevant

43. Question 5 - Storage Tanks • How do you do the costing for the cone roof storage tanks?

44. User Added - Storage Tanks $239,000 Multiply by 2 to get “bare module cost”

45. Adding Storage Tank

46. Question 5 -Agitator • “How can we account for the agitator (shaft, seal + motor) cost in our estimate?”

47. Reactor Diagram

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

49. The Final Screen