Production Costs (lifting or Lease Operating).

Production costs (Lifting or lease operating)- Costs incurred to operate and maintain wells, related equipment and facilities, including depreciation and applicable operating costs of support equipment and facilities and other costs of operating and maintaining those wells and related equipment and facilities.    

• Costs of oil and gas produced
• Lifting the O&g to the surface and then gathering, treating processing, and storing it
• Predominant Production activity

• Lifting costs (primary)
• Preparing it for the market (processing & separation)

• Separating into oil, gas & water
• **Majority of costs

• Ex: Costs of labor, repairs and maintenance, materials and supplied to operate wells, property taxes and insurance, severance taxes (tax on o&g productions)

• Installation of a well head ("Christmas tree") with valves that control product flow
• Installation of equipment to separate oil, natural gas, and water & other impurities
• Addition of a pipeline connection or storage container.
• Construction of tanks and other storage
• Workover operations

• The primary activity -lifting hydrocarbons to the surface (lifting costs) and treating/preparing for sale.

• additional wells may be drilled within the development area to enhance hydrocarbon recovery.

• Once the production starts flowing, it must be separated into its components (oil, gas, gas liquids, CO2, H2S and water).
• Other activities that occur during production phase include:

• Production enhancement, well servicing (routine   maintenance such as replacing worn or malfunctioning equipment) – repairs and maintnence on a well 🡪 operating costs and are expensed, only change in life of project (adding proved reserves) can be capitalized
• Well workover (a more extensive equipment repair).