Permian producers' study targets cost cuts

Jan. 12, 1998
Regional Operating Coat Comparison [64,652 bytes] A survey of Texas Permian basin oil and gas producers has revealed operating practices that are ideal targets for cost and efficiency improvements. The in-depth, field-by-field evaluation, performed by Ziff Energy Group, provides a diagnostic tool to identify controllable operating costs and effective solutions. The survey includes production data from almost 200 Permian basin fields in 1995 and 1996. Thirty-seven fields were studied to identify
A survey of Texas Permian basin oil and gas producers has revealed operating practices that are ideal targets for cost and efficiency improvements.

The in-depth, field-by-field evaluation, performed by Ziff Energy Group, provides a diagnostic tool to identify controllable operating costs and effective solutions.

The survey includes production data from almost 200 Permian basin fields in 1995 and 1996. Thirty-seven fields were studied to identify year-to-year trends and evaluate best practices (OGJ, Nov. 24, 1997, Newsletter).

This latest in a series of operating cost evaluations concentrates on the Permian basin but compares the results with operations of producers in the U.S. Midcontinent and western Canada (see table).

"Producers traditionally have found it difficult to locate the kind of meaningful peer properties for comparison that can lead to tangible and quantifiable operating improvements," said Paul Ziff, president of Ziff Energy. "The level of analysis in these studies goes well beyond traditional benchmarking studies by showing specific opportunities for reducing operating costs in each field in a particular region, based on the experiences of the wide range of producers participating in each study."

The survey

Eleven broad cost categories were examined in the Permian basin study. The results show that many of the costs, such as well servicing, electric power, and taxes (together, about 58% of field operating costs), can be substantially lowered.

Well servicing, for example, can sometimes be made more cost-efficient by analyzing battery management and chemical and pump optimization. The report provides well servicing statistics and documentation of the many techniques being used to reduce or manage failures.

And, although the cost of electricity is high in the Permian basin because of widespread use of waterflooding powered by electric pumps, it is often possible to negotiate lower rates with power companies, said Ziff Energy's Gordon Clarke. "For instance, equipment removed from service permanently or for extended periods may qualify for removal of demand charges."

Efficiency of electricity use also can be improved in many cases. Contributors to high power bills include inefficient pumping; inappropriate management of load factors; high peak demand; improperly sized motors, belts, or rods; poor lubrication; and misalignment of equipment, said the study.

Tax costs

Taxes account for an average 25% of overall operating costs for Permian basin oil producers-almost $1.35/ boe-and about 45% of overall operating costs for natural gas production, or about 32¢/MMcfe.

Ziff Energy says Permian basin producers use its studies to evaluate their tax rates-compared with their peer group-and to develop strategies to reduce tax bills. "With this information in hand, producers can determine whether property is being overvalued by tax assessors or duplicate taxation is occurring on leased equipment, as sometimes happens."

Regional variation makes it difficult to directly compare a study of one region to a study of another, although some trends are consistent.

Taxes are high in all regions, but some other categories of field costs vary considerably. In Canada, for example, electric power rates are low compared with U.S. rates, but transportation costs are higher due to lower population density, smaller infrastructure, and greater distance to markets.

Ziff Energy says similar reports on East Texas tight gas, the Gulf Coast onshore, and Gulf of Mexico studies are forthcoming.

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