Higher lease operating expense deserves a closer look. It does not, by itself, tell you what changed. The first task is to establish a comparable population of wells and a consistent definition of expense.
A portfolio can show higher cost because it acquired properties, because more invoices reached the ledger, or because a category moved into the LOS layout. Those are different explanations from a supplier increase or repeated field repair. Treating them as one problem sends the operating team in the wrong direction.
Hold the comparison steady
Start with the same properties in both periods. Confirm that ownership percentages, source coverage and account mappings are comparable. Note wells added, sold, shut in or transferred. Where the population changed, show the continuing property comparison separately from the total portfolio movement.
Do not silently discard those changes. Explain them. Leadership needs to see both what happened to the business and what happened within the comparable asset base.
Find the category behind the total
Break the increase into recognizable categories. Ask whether chemicals, electricity, water handling, maintenance or another category explains most of the movement in your own reporting structure. Then locate the properties contributing to that category.
An invoice posted late can create a monthly spike without changing the recurring run rate. A recurring service charge can change the run rate without creating a dramatic one month spike. The review needs both the pattern and the supporting record.
Use a simple dollar bridge
In a fictional example, portfolio LOE rises from $100,000 to $130,000. Newly included wells contribute $20,000. The remaining $10,000 needs investigation within the continuing population. That bridge does not prove the cause; it prevents the team from treating the entire $30,000 as deterioration in existing operations.
Leave with an explanation, not an accusation
Record the comparison used, the category and property driving the movement, and the evidence still required. If the increase is recurring, assign an operating response. If it is timing, identify the period that should carry the cost. If it is mapping, correct the definition through the agreed review process.
The useful question is specific: which expense changed, on which properties, under which reporting basis?
Research and references
These sources offer background for the review question. The worked examples and review methods above are Upstream’s practical guidance.
- Beyond Accuracy: What Data Quality Means to Data ConsumersWang & Strong · Journal of Management Information Systems · 1996 · Peer-reviewed research
Research perspective on evaluating data quality beyond accuracy.
- Cost Estimating and Assessment GuideU.S. Government Accountability Office · GAO-20-195G · 2020 · Authoritative government guide
Cost-management reference; apply its general principles to your project scope.
Common questions
Can higher portfolio LOE simply reflect more wells?
Yes. Separate changes in the included population from movements within the continuing properties.
Should a cost spike immediately trigger a field intervention?
First check scope, timing, classification and supporting activity. The financial signal identifies a question, not a diagnosis.
Put the question to work
Explore the connected workflow for los & loe or bring your well data question to a working session.
A worked LOE example: a worse ratio with lower spending
LOE per BOE is a ratio, not an explanation. In this fictional example, the same property’s monthly lease operating expense falls by $2,000, but production falls faster. Both months use the same expense categories, the same net ownership basis and the same organization approved BOE calculation.
| Measure | Month A | Month B |
|---|---|---|
| Included LOE | $30,000 | $28,000 |
| Included production | 3,000 BOE | 2,000 BOE |
| LOE per BOE | $10.00 | $14.00 |
Spending decreases 6.7%, while volume decreases 33.3%. The resulting LOE per BOE rises 40%. Describing that as a 40% increase in spending would be wrong. The team needs to investigate the production reduction as well as the expense total.
A simple bridge helps isolate the two effects. Apply Month B’s $28,000 expense to Month A’s 3,000 BOE: the ratio would be $9.33. The expense change therefore lowers the ratio by about $0.67 per BOE. Reducing the denominator to 2,000 BOE then increases the ratio by about $4.67, giving $14.00. This bridge uses a stated order; a different decomposition can allocate the interaction differently. Always identify the method and reconcile to the ending result.
Define the numerator before ranking wells
Make a written list of included expense categories. Confirm whether your view includes production taxes, gathering or processing charges, overhead, allocated shared costs and unusual repairs. Do not assume two reports both called “LOE” contain the same accounts. An asset manager’s operating measure may differ from the presentation used for financial reporting.
Trace the largest changes to their source records. Separate three questions: did the cost change, did the timing change, or did the mapping change? A late invoice can move the apparent expense between months without changing the service performed. A revised allocation can change a property total without changing the vendor bill. Neither is a reason to ignore the movement; both are reasons to describe it accurately.
Keep ordinary recurring expenses and exceptional work visible. For a fictional $8,000 increase, the operating review might identify $5,000 of a one-time repair, $2,000 of higher disposal charges and $1,000 of a prior period allocation. The total reconciles, but only part of it may belong in a recurring forecast. Mark each explanation as confirmed, estimated or unresolved rather than quietly converting the whole increase into the next month’s baseline.
Define the denominator with equal care
State the oil, gas and other volumes included, the conversion factors used, and whether production is gross or net. Keep the numerator and denominator on compatible ownership and period bases. A net cost divided by gross production produces an attractive number that may not answer the intended question.
The EIA’s explanation of energy units describes why energy quantities can be expressed on a common basis. A BOE conversion supports comparison of energy quantities; it does not make a barrel of oil and the equivalent energy quantity of gas economically interchangeable. Use your organization’s documented factor consistently and keep realized prices separate from the physical conversion.
Handle zero or missing production explicitly. If a well has costs and zero production, a finite cost per BOE value is not available. Do not replace it with zero, drop the expense from the portfolio, or create a reassuring chart point. Show the expense and the zero volume condition separately. Missing volume needs an identified owner and a resolution, not an assumed zero.
Compare the portfolio without averaging away the problem
Portfolio LOE per BOE should use total included cost divided by total included production for a consistent scope. It is generally different from a simple average of well ratios. In a fictional two well example, Well A has $10,000 expense and 1,000 BOE, while Well B has $20,000 expense and 500 BOE. Their ratios are $10 and $40. The simple average is $25, but the combined portfolio ratio is $30,000 ÷ 1,500 = $20 per BOE.
Use the weighted portfolio figure for the overall view, then inspect the wells behind the movement. A changing mix of wells can move the portfolio ratio even if each well’s economics are stable. A higher cost well may warrant investigation, but ranking alone does not establish whether it should be shut in, repaired or sold. Those decisions require the relevant operational, contractual and forward looking context.
A practical LOE review checklist
- Confirm the properties, period and ownership basis.
- Record the included cost categories and BOE factor.
- Reconcile the expense total to accepted source records.
- Separate expense changes from volume changes.
- Identify one-time items, timing effects and mapping changes.
- Investigate material exceptions at the property and account level.
- Assign the unresolved questions and agree what enters the next forecast.
The GAO cost guide provides general principles for documenting scope and assumptions and updating estimates with actual costs. It is a government cost management reference, not a petroleum LOE standard. The examples and review checklist above are independent educational applications.
Use the finance workflow to investigate the financial movements, and the operations workflow to add field context. For the underlying ratio definition, read what belongs in the cost per BOE denominator.