Are you thinking about entering an oil and gas lease, but want know what your ongoing expenses are going to be like first? If the answer is yes, this blog is for you! In this blog we cover ongoing expenses for oil and gas leases, as well as how you can manage them.
What is a Lease Operating Expense?
Lease operating expenses, refers to the recurring costs of operating the wells and equipment. They are also known as LOEs, the term “LOE” is frequently used in the oil and gas business to talk about costs associated with a given well or lease. Most times, when there are multiple partners involved in the lease, the LOE is shared among the different parties.
LOE elements come from multiple different places. However, not all well costs are included in the LOE basket. Here are the most pertinent LOE in the oil and gas industry.
Maintenance is just a single (and very broad) aspect of the whole picture when it comes to LOE. Note that as a well grows older, the amount of oil or gas that it produces will begin to decline significantly. Most modern companies use a wellhead compressor for gas lift and that lowers the density of the fluids inside the well, making it easier to extract oil and unlocking years of extra production potential.
One significant way to reduce LOE is to reduce routine maintenance and inspection trips to the compressor itself. Instead, producers can use sensor readings to understand and analyze whether the machine can operate safely. This allows producers to remotely restart their compressors without arranging an inspection tour, dramatically cutting planned downtime and increasing production.
Environmentally Compliant Disposal
The same rocks that contain oil and natural gas also contain saltwater, which is considered a by-product of drilling. On an offshore oil rig, disposing of this by-product is as simple as letting it flow back into the sea. Inland oil wells will face more complex challenges when it comes to disposal.
On land, saltwater is considered an environmental hazard that can poison ecosystems. The most common choice for disposal is to drill a second dry well alongside the first, pump saltwater into it, and then cap the well with a non-porous rock. It can be daunting to coordinate the disposal of wastewater in this manner. Therefore, to minimize LOE related to saltwater, producers are beginning to expedite disposal using the right mix of personnel and equipment.
Saltwater Separation and Pipeline Maintenance via Chemicals
Chemical treatment is a very crucial yet basic step in the oil production process. Separating crude oil into its various grades is an intensive process that starts at the well itself. Acquiring and deploying these chemicals can represent a primary component of a company’s LOE. Notably, there are too many variables that control whether a production company is spending wisely when it comes to chemical management.
For example, are treatments happening at the correct frequency and intervals? Or are the correct amounts of chemicals injected for continuous chemical treatments? Underdosing chemicals, exposes the operator to expensive equipment damage or even well shut-ins that result in lost production. On the other hand, overdosing results in wasting chemicals.
Labor Pool for Efficient Operations
During the early part of the 2010s, the oil industry experienced what experts called The Great Crew Change. A big percentage of the workforce retired, leaving the remaining personnel being composed of individuals under the age of 35. Also, low oil prices depressed hiring budgets, which means there isn’t new talent entering the field. These issues combined cause an increase in lease operating expenses.
A traditional oil well makes use of labor during almost every stage in the production process, but out of necessity, this is beginning to change. When equipped with mobility options and industry 4.0 applications, each crew member can cover a large area, addressing problems remotely and pre-emptively.
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