TeachMeFinance.com - explain Production costs
Production costs The term 'Production costs' as it applies to the area of energy can be defined as 'Production costs: Costs incurred to operate and maintain wells and 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. They become part of the cost of oiland gas produced. The following are examples of production costs (sometimes called lifting costs): costs of labor to operate the wells and related equipment andfacilities; repair and maintenance costs; the costs of materials, supplies, and fuels consumed and services utilized in operating the wells and related equipment and facilities; the costs of property taxes and insurance applicable to proved properties and wells and related equipment and facilities; the costs of severance taxes. Depreciation, depletion, and amortization (DDA) of capitalized acquisition, exploration, and development costs are not production costs, but also become part of the cost of oil and gas produced along with production (lifting) costs identified above. Production costs include the following subcategories of costs: well workers and maintenance; operating fluid injections and improved recovery programs; operating gas processing plants; ad valorem taxes; production or severance taxes; other, including overhead'.
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