Solomon Applications

Cost Projection Model

An accurate operating cost projection model is essential for planning.

Over the past 20 years, Solomon has provided production operations benchmarking to a broad range of operators with a variety of departmental configurations. We have found that these operators often lack, and would therefore benefit from, a standardized, accurate, and balanced operating cost projection model.

Cost projections are a key element of planning and are used to evaluate new developments, identify cost drivers, estimate economic reserves, define mid- and long-term cost optimization targets, and maximize the value of portfolios of producing assets. Cost projections facilitate decision making at every stage of development, including the concept, pre-operational, and operational stages. Because cost projections are so important, Solomon has developed a user-friendly software tool to help create them — the Cost Projection Model, or CPM. CPM is based on a practical projection methodology developed by a multidisciplinary team of Solomon personnel over many years.

Why Choose Solomon Upstream?

Solomon’s CPM methodology has been adopted by diverse operators worldwide. For instance:

  • A national oil company has used CPM as an input to maximize its portfolio of investments and accurately assess its fields’ economic limits.
  • A coal-bed methane (CBM) producer has used CPM to quantify the impact of its aggressive growth plan on its future OpEx needs.
  • An offshore operator used CPM to estimate how changes to its gathering strategy would affect its future cost allocation by field.
  • An independent producer used CPM to establish its medium-term “unit operating cost per barrel” target based on sharp increases to its produced water level.

How It Works

CPM provides the framework to set up model parameters, perform a cost allocation process (activity-based costing), and specify technical and economic assumptions for a projection. Features include web access, user data management, and scenario analysis. The methodology uses historical cost references (internal or external), technical drivers (e.g., volumes, wells, and staffing), and economic drivers (future price indexes) to project costs.

Projected costs are by cost category (well servicing, surface R&M, chemicals, and labor) using criteria such as total or unit cost, aggregation levels (field, area, and region), input data scenarios (base, pessimistic, and optimistic), term (real or nominal) and exchange rates. In addition, CPM calculates operating costs separately for baseline and incremental projects.