Canadian Operating Costs Continued to Rise in 2008 with No Drop in 2009
 Operating costs for western Canada upstream oil and gas producers, increased steadily in 2008 without much change so far in 2009, according to Ziff Energy Group’s recently released 2009 Improving Field Performance Study, which assesses upstream operating costs and production reliability.
Ziff analyzed 210 fields and 26,800 producing wells that produce 3.3 billion cu ft per day (Bcf/d) of gas and 160,000 barrels per day (Bbl/d) of conventional oil. Annual operating costs total $2.3 billion. The study found that oil and gas field operating costs in the Western Canadian Sedimentary Basin (WCSB) continued to rise sharply in 2008.
Weighted average unit costs increased 13 percent to $1.10 per 1,000 cu ft equivalent (McfE) for gas fields and by 15 percent to $13.70 per barrel of oil equivalent (BOE) for oil fields. Main drivers of the cost increase were the higher processing fees, maintenance services and higher energy costs.
The “Big 4” gas costs are lease fuel used, not costed by most producers (23 percent); processing fees (21 percent); surface repairs and maintenance (14 percent); and purchased energy (11 percent).
For oil fields, the Big 4 costs are surface repairs and maintenance (18 percent); purchased energy (16 percent); well servicing (12 percent); and contract services (11 percent).
The detailed makeup of average gas and oil costs in 2008 is shown in Figure 1. In the first nine months of 2009, average operating costs were virtually flat compared to a year ago. However, the range of operating company performance was wide, with three companies decreasing costs by more than 10 percent, but seven companies seeing operating expenses rise by over 10 percent.
Ziff’s study concluded several trends in the oil and gas industry:
- Continuation of significant overall cost inflation. The main goal of the operations study is to compare fields of similar type. On average, the potential operating cost reduction opportunities are 20 percent of total adjusted operating costs.
- Significant cost improvement opportunities are generally available within the following cost classifications (some of these areas involve contract renegotiations):
o Energy, particularly lease fuel consumption
o Processing fees
o Surface repairs and maintenance
o Well servicing
o Labor and field supervision
- Some companies are seeing the benefits of cost reductions in 2009. However, an equal number are not
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