Lease Operating Expense (LOE)

For example, an operator may need to pay for:

• Field Labor and Pumpers
• Equipment Repairs
• Electricity or Fuel
• Chemicals and Treatments
• Produced-Water Handling and Disposal
• Routine Operating and Compliance Work

LOE is an operating cost, not the cost of drilling or completing a new well. The easiest way to understand it is:

CapEx gets the well built. LOE keeps the well producing.

Quick Reference

What Costs Are Included in LOE?

LOE generally includes recurring costs directly connected with operating producing wells and related lease equipment.

Common examples include:

• Field Labor and Pumpers
• Routine Maintenance and Repairs
• Electricity and Fuel
• Chemicals and Well Treatments
• Produced-Water Handling and Disposal
• Compression used in Field Operations
• Materials and Supplies
• Surface Equipment Operation
• Certain Environmental and Regulatory Operating Costs

The exact cost classification can vary by company, accounting policy, contract, and reporting method.

Fixed vs. Variable LOE

Operators often separate LOE into fixed and variable costs.

This distinction matters because oil and gas wells usually decline over time.

A well may have nearly the same monthly fixed costs while producing fewer barrels. When that happens, the LOE per BOE rises even if the total monthly LOE stays the same.

What Is Not Included in LOE?

LOE generally does not include:

• The Cost to Drill and Complete a New Well
• Major Capital Projects
• Exploration Costs
• Lease Acquisition Costs
• Corporate General and Administrative Costs
• Interest
• Depreciation and Depletion
• Severance or Production Taxes
• Downstream Gathering, Processing, Transportation, and Marketing Costs

However, cost classifications are not always identical across every operator or agreement. A repair may be treated as an operating expense, while a major project that significantly restores or extends productive capacity may be treated as capital.

The applicable accounting rules and company policies should be checked when the classification matters.

LOE vs. CapEx

LOE and capital expenditure (CapEx) are different.

A simple rule is:

• LOE Keeps the Current Operation Running
• CapEx Creates or Materially Improves the Asset

The line can become less clear for workovers, repairs, and equipment replacements. The facts and applicable accounting policy determine the final treatment.

Routine LOE runs through the operating budget and shows up on the monthly Joint Interest Billing (JIB) statement without a separate election. A capital project is usually circulated on an Authorization for Expenditure (AFE) that partners approve before the money is committed — so if a cost required an AFE, it was probably being treated as capital.

What Is LOE per BOE?

LOE per BOE measures how much it costs to operate a well or asset for each barrel of oil equivalent produced.

The formula is:

This metric allows operators to compare operating costs with production.

A lower LOE per BOE generally means the asset is producing more efficiently from an operating-cost perspective. A higher LOE per BOE may signal:

• Declining Production
• Rising Water Volumes
• Higher Power Use
• More Maintenance
• Aging Equipment
• Unusual Operating Problems

A high LOE per BOE does not automatically mean a well is poorly operated. Cost levels vary by basin, well age, production mix, water handling, infrastructure, and operating conditions.

The best comparisons are usually:

• The Same Well Over Time
• Similar Wells of the Same Age
• Similar Assets in the Same Area
• The Operator’s Actual Performance against its Own Budget

How Is LOE per BOE Calculated?

Assume a well produces in one month:

• 4,000 Barrels of Oil
• 12,000 Mcf of Gas
• $54,000 of LOE

Using the common energy-equivalent conversion of 6 Mcf of gas = 1 BOE:

• Gas Production: 12,000 Mcf ÷ 6 = 2,000 BOE
• Total Production: 4,000 BOE + 2,000 BOE = 6,000 BOE
• LOE per BOE: $54,000 ÷ 6,000 = $9.00 per BOE

This means the well had $9 of lease operating expense for each BOE produced during the period.

The 6:1 conversion is an energy-equivalent convention. It does not mean six Mcf of gas always has the same market value as one barrel of oil.

Why Does LOE per BOE Rise as a Well Ages?

Most oil and gas wells produce less over time.

Some operating costs, however, do not decline at the same rate.

A well may still need:

• Field Visits
• Inspections
• Maintenance
• Electricity
• Chemicals
• Surface Equipment

As production falls, those costs are spread across fewer BOE.

For example, a well with $30,000 in monthly LOE will have:

• $3/BOE at 10,000 BOE per month; but
• $10/BOE at 3,000 BOE per month.

The monthly cost did not change. The production did.

This is why LOE per BOE often rises as wells mature.

Why Is LOE Important to Operators?

LOE is one of the most important measures of producing-asset efficiency.

Operators use it to:

• Track Operating Costs
• Compare Wells and Assets
• Find Unusual Cost Increases
• Identify Water-Handling Problems
• Evaluate Maintenance Needs
• Measure Cost-Saving Projects
• Support Budgets and Forecasts
• Decide whether a Mature Well still Makes Economic Sense

The lowest LOE is not always the best result.

Cutting maintenance may reduce costs for a short time but create equipment failures, lost production, or larger costs later. Good LOE management means controlling unnecessary costs without damaging production or asset reliability.

Water Management and Automation Are Becoming Major Cost-Control Tools

Who Pays Lease Operating Expenses?

Working-interest owners generally bear their share of the costs required to operate the property, subject to the governing agreements.

Working-Interest Owners

A working-interest owner generally bears its proportionate share of operating costs. A non-operating working-interest owner may see those costs through Joint Interest Billing (JIB).

Royalty Owners

A traditional royalty interest is generally free of the costs of production. This means ordinary lease operating expenses are generally not charged directly against the royalty interest.

This should not be confused with post-production costs, which are a separate issue and may depend on the lease language and applicable law.

Net Profits Interest Holders

A net profits interest is based on a defined measure of net profits. Depending on the agreement, operating costs such as LOE may reduce the amount used to calculate the payment.

The governing instrument controls.

LOE vs. Post-Production Costs

LOE and post-production costs are not the same.

The exact treatment of post-production costs can depend heavily on contract and lease language.

Practical Application: How Operators Use LOE

An operator may compare LOE across wells to find assets that need attention.

Suppose two similar wells each produce 5,000 BOE per month:

• Well A has LOE of $30,000, or $6/BOE
• Well B has LOE of $55,000, or $11/BOE

The difference does not automatically prove that Well B is poorly managed.

The operator should ask:

• Is Well B Producing more Water?
• Does it Need more Compression?
• Is Equipment Failing?
• Are Electricity Costs Higher?
• Is the Well in a more Expensive Operating Area?
• Was there an Unusual Repair During the Month?

LOE is most valuable when it helps the operator find the reason behind the number.

See It in the Data

The LOE dollars sit inside an operator's accounting, but the production that turns them into a per-BOE figure is public. Mineral View surfaces an operator's producing wells and volumes, while features like Operator Comparison, Maps, and Operator Presentation provide additional context to evaluate how those volumes compare across operators, where the wells are located, and how an operator's overall footprint has evolved.

Together, the BOE denominator, the operator's mix of oil and gas, and how mature its wells are can all be read from the data—the context that tells you whether a given LOE level is likely efficient or strained.

Is LOE Reported to the Texas Railroad Commission?

No. LOE is an accounting figure and is not reported as a lease operating expense line item to the Texas Railroad Commission (RRC).

• The Operator of Record
• Producing Wells
• Oil Production
• Gas Production
• Well Status

That information provides the production side of the LOE-per-BOE calculation, but it does not reveal the operator’s private operating costs.

Producing wells and volumes by operator can also be reviewed in Mineral View.

LOE Standards and Related Records

The exact accounting treatment depends on the applicable agreements, accounting policies, and facts.

Common LOE Mistakes

• Confusing LOE with the Cost of Drilling and Completing a Well
• Assuming Every Repair is Automatically LOE
• Comparing Unrelated Basins or Well Types Using One Universal LOE Benchmark
• Looking only at Total LOE without Checking Production
• Assuming Rising LOE per BOE always Means Total Costs Increased
• Ignoring Produced-Water Costs
• Cutting Maintenance in a Way that Causes Lost Production or Larger Failures
• Confusing LOE with Post-Production Costs
• Assuming LOE is Reported to the Texas Railroad Commission

Worked LOE Example

An operator reviews a mature well across two years.

Total LOE fell about 6%. LOE per BOE rose about 143%. Nothing went wrong with cost control — the operator did reduce spending. The denominator collapsed faster than the numerator, exactly as the fixed-cost share predicts.

Instead of looking only at the $8.50/BOE figure, the operator compares the following:

• The Well’s LOE History
• Production Decline
• Water Volumes
• Similar Nearby Wells
• The Remaining Operating Margin

The key lesson is simple: LOE per BOE becomes most useful when cost and production are reviewed together over time.