Lease operating expense
- Abbreviation
- LOE
- Also known as
- LOE, lifting cost, lease operating costs
Lease operating expense (LOE) is the recurring cost of keeping producing oil and gas wells running after they are drilled and completed, such as labor, power, chemicals, water handling and routine repairs. It is often expressed per barrel of oil equivalent produced.
What is lease operating expense?
Lease operating expense, usually called LOE, covers the ongoing costs of producing oil and gas from existing wells. It excludes the one-time capital costs of drilling and completing a well, and it is usually reported separately from production taxes, transportation and general and administrative costs, although company definitions vary.
What LOE includes
- Field labor and contract services.
- Electricity and fuel for pumps, compressors and equipment.
- Production chemicals, such as corrosion, scale and paraffin inhibitors.
- Water handling, including trucking and disposal of produced water.
- Routine maintenance and repairs, and in many reports, workovers.
- Equipment rental, insurance and other field costs.
How LOE is measured
LOE is often expressed per unit of production, in dollars per barrel of oil or per barrel of oil equivalent, which lets operators compare wells, fields and companies. Because many costs are fixed, LOE per barrel rises as production declines, and in mature wells it can approach the value of the oil produced.
Why LOE matters
LOE largely determines when a well reaches its economic limit and is plugged. In mature fields, water handling is often the largest component, so a rising water cut pushes LOE up. Interventions that restore production, reduce failures, or cut chemical and water costs can extend a well’s life by improving the balance between revenue and LOE; they are evaluated on added production and on LOE together.
Frequently asked questions
Usually, yes. Ongoing production chemicals, such as corrosion, scale and paraffin treatments, are typically counted as operating expense.
Many operating costs stay roughly constant while production declines, so the cost per barrel rises. Increasing water volumes add further cost.
Sources
- lease operating expense, SLB Energy Glossary
- Oil and gas industry cost reporting, U.S. Energy Information Administration