This is the 2^nd blog in a series about VERDAZO Diagnostic Workflows

Let’s face it, oil and gas producers are in the business of making money, not making oil and gas. The current market has made this a poignant reminder to the industry. That’s why we’re doing this blog series on “diagnostic workflows”, an analytic approach that helps you focus your efforts where they count the most. This week’s blog is all about Financial Performance: optimizing net operating income (netback) and minimizing operating expenses.

Check out our last blog on Optimizing Production Performance for the details about the three steps that make up a typical diagnostic workflow:

1. Identify & Prioritize
2. Inform & Assess
3. Investigate

The Challenge of Analyzing Financial Data

The biggest challenge to analyzing Financial data in a rapidly changing market is “data latency”. It can take months for costs and revenues to get booked to wells ... and some of those costs are annual costs.

While VERDAZO has developed some advanced techniques to address these issues, I’ll focus on the diagnostic tools that leverage the data that is available … and save a more advanced discussion for a future blog.

Here are three steps that pertain to a Financial Performance Diagnostic Workflow.

1. Identify and Prioritize

The chart below shows:

• the Diagnostic Measure (on the y-axis) Netback Efficiency ($/BOE). This tells us how large our margins are per BOE produced for each well. A negative Netback/BOE represents a well that is losing money.
• the Contextual Measure is Net Operating Income (Netback) Contribution ($). This tells us how important each well is in terms of its overall financial contribution to the company. The bigger the contribution, the more attention it deserves … and the greater impact an efficiency improvement will have.
• the wells (each well is a point) have been Categorized by Area, so we can gauge how each Area collectively contributes to the company and how each well (within an Area) compares to its peers.

I have identified four candidates for investigation: a high contributor, an outlier, an unlikely Netback/BOE and a large negative Netback.

2. Inform and Assess

The chart below shows that detailed Opex breakdown for the outlier. We can quickly see that following a well servicing event (red bars) the gas processing fees (green bars) have increased substantially even though Total Sales (BOE) are less than they were previous to the well servicing.

3. Investigate

The report below provides a lower level of detail, all the way down to the minor account level. This report supports further drilldown that may ultimately result in the engagement of the finance department to assist in investigating the increase in gas processing fees.

Our next blog will focus on a Performance to Forecast Diagnostic Workflow.