MGMT 6091- MIS Field Field Engineering Inc. MIS Field Engineering Inc. has been providing general…

MGMT 6091- MIS Field Field Engineering Inc.

MIS Field Engineering Inc. has been providing general engineering support services for oil fields in Libya. MIS has traditionally been providing solid mechanical services with the focus on maintaining drilling hardware and its services have been valued by the industry. Early this year the company received an offer for a long-term contract to oversee the crude oil pipe transportation from three existing drilling sites to sea ports for export to global markets. MIS is evaluating whether they should sign this contract, which comes into effect in January 2022. With this contract MIS assumes the responsibility of maintaining the existing pipelines and pumping stations involved. MIS has also been asked to submit a bid for a new mega pumping station.
Currently there are three older pumping stations (PS1, PS2, and PS3) with effective pumping capacities of 720, 1020 and 410 barrels per hour that receive crude from three oil fields (OF1, OF2 and OF3) with hourly production of 560, 820 and 770 barrels. The three pumping stations utilize diesel engines to transfer the crude to the sea port. The hourly operating cost of the three stations (manpower, material, and maintenance, overhead) is $1.24 per barrel and the cost of pumping crude from the oil fields to the pumping stations are shown in the following table:

Cost of Pumping Crude Oil (per 10 barrels)
PS1 PS2 PS3
from OF1 to $4 $8 $8
from OF2 to $16 $24 $16
from OF3 to $8 $16 $24

As a preventative maintenance measure, the pumping stations can be regularly monitored for overheating, circuit shorting and exhaust flow (geared to CO2 emission). These maintenance/monitoring activities render an operational benefit (in terms of repair cost saving) of $4, $3 and $5 per minute for PS1, PS2 and PS3 respectively. However, since the maintenance crew have other responsibilities they can respectively allocate 4, 6 and 8 labour-hours to overheating, circuit shorting and air pollution. The following table summarizes the maintenance labour requirements at the pumping stations.

Preventative maintenance labour requirements at pumping stations
Type of Maintenance Pump Station 1 Pump Station 2 Pump Station 3
Overheating 1 2 2
Circuit Short 3 – 4
CO2 Emission 2 1 4

MIS has the option of contracting the operation of existing grid (existing pipelines and pumping stations). The best bidder of three contenders who would assume complete operational responsibility of $37,000 per hour.
As a potential future contract, MIS has also been asked submit a tender for a mega pumping station to be constructed at the sea port. This station is to utilize an advanced computerized machinery to replace the older stations. MIS is to submit a bid for total cost of constructing and commissioning this station as well as the pipe lines that connect oil fields to the new mega station. The estimated cost of constructing this mega site is $315M and pipelines can be constructed at $100,000 per kilometer. The three oil fields (OF1, OF2 and OF3) are all located southeast of the sea port. The first oil Field (OF1) is located 160 km south and 200 km east of the port. The second (OF2) is Located at 150 km south and 180 km east of the port. The oldest field (OF3) is located 140 km south and 160 km east of the port. As the oil fields are all located in a flat region with no topographic challenges straight pipe lines with a single lane access road can be constructed easily.
The CEO of MIS company has assigned his Chief Operations Engineer, Hesam Albakri to draft a proposal for each project. A mechanical engineer by training, Hesam believed he needed the advice of operational managers for proposal drafts. Last week in a meeting with your group he admitted that during his years with MIS he has been engaged in multiple engineering projects, but has not been responsible for the operations of facilities. “Right now crude is pumped indifferently from the three oil fields at a cost unknown to us. So it would be ideal to have an estimate of this cost and better yet, to find how the pumping loads can change to reduce that cost of transferring oil from the oil fields. I also need to know if it would be cost efficient if we subcontract the operations of existing pump stations and frankly, I don’t know the hourly cost of operating the 3 pumping stations. I prefer to focus on the mega station project. I can determine the equipment requirements for the mega station and provide a technical cost estimate to our finance department so they complete the tender for that project. Given the short time we have to submit the tender I am going to need your help with estimating the other costs of the mega project.” said Hesam rather desperately.
To help Hesam, your group needs to lease a technical report in which you address his concerns and offer your consultant advice. Please also be prepared to orally present and justify your proposals.