Profitability at every point of production is on everyone’s mind, everyday. We get it. It’s simply
good business to scrutinize operational expenditures to ensure that you’re not overspending
on the equipment needed to produce your wells.
As the industry focuses on profitable unconventional production, an examination of prices for
goods and services is both necessary and healthy. However, good procurement teams know to
avoid the Unit Price Fallacy — the misplaced belief that selecting the lowest unit price from a
group of products or services will result in the lowest total operating cost.
So, how do you steer clear of the Unit Price Fallacy and let your procurement strategies deliver
bottom line results? You keep score.
Scorecarding ESP vendor performance is a great way to measure progress toward reducing
your total operating expenses. Select a vendor that will track and perform to the key
performance indicators (KPIs) that matter to your business, and you should see total operating
expenses fall while production performance improves.
See, when it comes to electric submersible pumps (ESPs), many factors can impact total
operating cost. Quality and reliability are two such factors; a new, quality ESP designed
appropriately for your well will experience fewer failures, offsetting what may be a higher unit
price with far fewer maintenance bills to consider over the course of a year.
Moreover, fewer failures mean less money spent on workover rigs, BOP rentals, kill trucks and
fluid. Oh, and one more thing — fewer failures mean more production, which lowers your
operating costs on a per BOE basis.
Ready to start keeping score?
The table below shows some suggested ESP KPIs and their respective impact on your business: