OPERATING COSTS vs Capital costs

All the costs that are spent till now before this moment called
capital expenditure or CAPEX

The operating costs are the total expenditures relating to the

operation of a production plant The abbreviation OPEX

CAPEX is used to create the system and the OPEX are used to
keep the system running
 Classification of operating costs

The operating costs can be classified either by

• Their nature (personnel, services, supplies) or

• Their purpose (production, maintenance, security, etc.).

 Where items are classified by their nature they will include,
in particular:

• Personnel costs, accommodation, subsistence, transport;

• Consumables (fuels, energy, lubricants, chemicals, office supplies,

technical equipment such as piping, drill strings, joints, catalysts,
molecular sieves, cladding, laboratory supplies, individual items of
security equipment, spare parts, household supplies, food);

• Telecommunications costs, miscellaneous hire charges, service and

maintenance contracts
 The classification by purpose or the objectives:

• The direct costs comprise down-hole (well services) and surface production
maintenance of the wells and surface installations, inspection, logistics,
security, site management;

• The transport costs are the costs related to the transmission pipelines and
the terminals

• The indirect costs include technical assistance, operating company staff and
head office staff
The breakdown of operating costs by purpose
 Unit Cost

• A unit cost is a total expenditure incurred by a

company to produce, store, and sell one unit
of a particular product or service. Unit costs
are synonymous with the cost of goods sold
and cost of sales.
 Variable and Fixed Unit Costs

• Successful companies seek ways to improve

the overall unit cost of their products by
managing the fixed and variable costs. Fixed
costs are production expenses which are not
dependent on the volume of units produced.
Examples are rent, insurance, and equipment.
Fixed costs, such as warehousing and the use
of production equipment, may be managed
through long-term rental agreements
• Variable costs vary depending on the level of
output produced. These expenses have
further division into specific categories such as
direct labor costs and direct material costs.
Direct labor costs are the salaries paid to
those who are directly involved in
production while direct material costs are the
cost of materials purchased and used in
production
 F&D costs
• Field and development costs (F & D costs) hac,e
the units of currency divided by units of
production (e.g., $/MSCF). These costs include all
costs associated with securing the right to drill a
well, as well as the cost of drilling; in other words,
all costs associated with securing access to the
resource. For example, if the operator had to
spend $5 million to secure the rights to drill a
well, as well as costs of drilling and completion,
and the operator expects to get 5 BCF of gas from
the well, then F & D costs would be $1/MSCF.
Different types of cost per barrel