Who is controlling your profits?

I recently had a meeting with a major operator that covered paraffin testing. At the end of a long 6-months of testing and evaluations we were told, “it just wasn’t enough to move the needle”.  What? We performed as well or better than what they were/are currently using. It just wasn’t good enough to get a real opportunity.

 

Sometimes, too much attention is placed on the cost and the solution continues to evade the operator. The test in a lab environment  matters because the laboratory testing will never be able to duplicate the system. The temperature, pressures, velocities, turbulent flow, waters, and all the other little factors affect performance. What matters is actual treatment ppm. A 500-ppm successful test in the lab may yield a 100-ppm treatment success in the production system. How can you ever know when you base your decisions off of assumptions and standard business practices?

 

Back to the real issue here, economics…

 

We have established how internal/external lab testing can affect profits and performance. Shall we entertain how procurement and field supervisors can also affect profits and performance?

 

Mr. Field Foreman is friends with Brand X chemical company, yet there are constantly little issues that arise and they are discussed at the monthly/quarterly reviews and changes are made; more times than not the problem doesn’t go away or is briefly alleviated. Brand Y is knocking on the door and says they have a solution. They aren’t friends with Mr. Field Foreman and they have a reputation for being “expensive”.  Mr. Field Foreman can manage the problem with Brand X so he is scared to take a chance on Brand Y for two reasons, the first is that there is no personal association and the second is that procurement will never allow him to purchase a “more expensive” chemical. All the while, it’s business as usual. But what if Mr. Field Foreman had 100 wells that Brand Y could have solved the problem AND saved him money? So let’s assume that Brand X has a $15/gallon chemical and treats at 500 ppm requiring each well to consume 5-gallon/day of chemical. We will also assume that Brand Y has a $25/gallon chemical and treats at 100 ppm requiring each well to consume only 1-gallon/day.

 

Consider these simple numbers for an economic illustration:

Brand X Treatment = $75 per day x 100 wells = $7,500 per day x 365 days = $2,737,500.00

 Brand Y Treatment = $25 per day x 100 wells = $2,500 per day x 365 days = $912,500.00

That’s a difference of $1,825,000.00!!! That doesn’t even consider associated costs because of LOE expenses, etc. At the end of the day, the operator LOST $1.8 million in revenue because of these three decisions:

  • Lab Testing says “as well as current program”
  • Procurement dictates purchasing based on price vs. performance
  • Field Foreman is content “managing” the problem which is directly attributed to upper-management

 

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