Tracking Inventory In Oil & Gas Production

Most of the equipment you handle and components you use on an oil lease fall under the general heading of materials. That includes spare parts, pipes in storage, and chemicals that are stored on the lease. All of that stuff has to be recorded and while taking inventory isn’t fun, it is an important part of making sure a business is financially stable.

Inventory

A pumper working on a lease will usually be somewhat responsible for the materials that get used in the course of a workday, so it all has to be kept track of and counted. A pumper will also usually be responsible for materials that are stored on a lease, particularly if they go missing; theft can be a serious problem. Materials need to be easily accessible, securely stored, and reasonably organized.

All of the tracking and accounting is made possible by accurate and meticulous recordkeeping. Each type of material is usually tracked in its own set of records which requires a specific set of information. The recordkeeping needs will usually vary from well to well, from lease to lease, and from company to company.

 

Storing Materials

While most materials are usually kept in a central location, there is often a certain amount of stuff that gets stored on the lease. There’s a few reasons for that. The central storage location may be in a town or other municipality, and believe it or not the materials stored in those locations can be subject to additional taxes. It’s also usually useful to have at least some stuff handy in the case of an emergency or to save on the cost of transportation. It’s not unusual to have spare rods, pony rods, and tubing on hand. It’s obviously not too useful to store fuses at the company’s office, so there’s usually a supply at the lease. Older equipment being removed or new equipment to replace it might be held temporarily at a location, as will ladders, walkways, and other infrastructure before it’s put in place. It’s not unusual to have a bit of everything handy.

All this stuff will usually be stored in a fenced and locked part of the lease. This area will need to be prepared to keep the equipment stored there in good condition. It may include a small doghouse for storage of more sensitive equipment or as a place to fill out paperwork out of the weather. The fenced-in area will need to be large enough for a truck to enter, deliver its load, turn around, and drive out.

Among other things, it’s important to keep weeds and plants from growing, as they can lead to a variety of problems. The lack of plants means that mud can be a problem if there aren’t any preventative measures taken. Crushed rock is used to address both problems. The yard itself should also be placed to prevent issues with drainage and other problems.

Some material may need to be stored off the ground. This will usually include engines and other delicate equipment. Concrete slabs or wooden slabs may be used. A roofed truck dock is great for handling larger and heavier material. All engines and other equipment should be winterized when they are put into storage. ‘Winterization’ means to drain fluids and seal openings to prevent damage from weather, which will probably need to be done no matter the season. Rain, in particular, can cause rust and valve damage.

The storage area should be well organized to make everything easy to find. A plan of the storage area is helpful, with all the material marked down. Equipment racks and storage should be labeled and marked clearly so that everything is easy to find; some sort of plan where everything is numbered in order usually works best. Everything should be recorded as soon as it’s brought to the storage area. If inventory isn’t tracked, it’s much more likely to go missing.

When it’s been decided that material is no longer useable on the lease, it can be downgraded to either junk or scrap. These are terms that have specific meanings: scrap is not repairable and has essentially no useful parts, while junk isn’t usable but may still have some useful parts or pieces. Junk might be held onto so that it can be worked over for spares. Either junk or scrap could be sold at auction. It all has a value, even if only a small amount, and so junk and scrap need to be tracked as well.

 

Pipe Storage

Pipes and rods will normally be stored on the lease, as waiting for replacements can cause a significant amount of well downtime when it’s not producing. Pipes are rated according to the quality of the steel and the depth they’re rated to. The lowest rating, for example, is H-40, followed by J-55. The pipe will be stamped with it’s original rating. However, the pipe’s rating may change; when used pipe is removed from the well but is still in decent shape, its quality will be downgraded one step and it may be put to some other use. For example, a joint of J-55 piping will be downgraded to H-40. This change in rating is not marked on the pipe itself, but only in the materials records. The recorded rating should be trusted over the rating stamped on the pipe.

Inventory

Figure 1. A rack for storing pipe at a lease location.

Pipes are stored in racks, which need to be designed to be large and strong enough to hold the lengths of pipe that are going to be used. The racks are also usually placed so that the pipes are oriented north-and-south when stored. It’s believed that this can prevent or slow the re-crystallization of the pipes, which can impact its strength. It’s also helpful if the pipe rack is built so that the pipe can be easily rolled on and off a truck.

Pipe and rods can be stacked in layers with strips of wood used to separate each layer. A wooden block can be nailed on the board to prevent pipe from rolling off the rack unexpectedly. Pipe should be even and neat when stored in racks. It also should be collared, and the threads should be cleaned and covered with thread protectors. It’s common to store pipe and rod joints by length, with lengths coming in different ranges. In range 1 are pipes 30 to 35 feet in length. In range 2 are pipes 35 to 40 feet long. Range 3 includes pipes from 40 to 45 feet long.

 

Chemical Storage

Chemicals are usually expensive and can be dangerous, so it’s essential that they are always clearly identified. They usually come in drums that hold 55 gallons, which should be marked with the contents and the date the chemical arrived at the storage location.

Inventory

Figure 2. It’s important that chemicals are stored correctly and disposed of when they are no longer needed.

There are a few requirements and common practices that should be followed when marking chemicals. The markings should be at least 1 inch high and spaced so that they are easy to read. The markings can be specific to the chemical or just be a general category. For example, chemicals used to treat oil could be marked with an O, solvent for clearing paraffin can be marked with an S, and so on.

The inventory of chemicals should also always be kept up to date. Accurately tracking the amount of chemicals on hand also allows you to anticipate when more will be needed. Misplacing or misidentifying chemicals can lead to serious problems. Not only can it lead to unsafe handling, it can also be costly to identify chemicals so they can be disposed of correctly.  

Chemicals should be inventoried regularly so that the amount used in the preceding month can be calculated. With that information, it’s possible to estimate chemical usage over time. Each 55 gallon should be counted, and partly full barrels should be measured and accounted for as well. There are charts that allow you to convert depth gauged in a barrel to volume of fluid.

Details about the chemical should be noted in records, including the name, purpose, instructions for use, and how long it can be stored.

 

Inventorying And Moving Stored Materials

It’s likely that materials will be moved on and off the lease with some regularity. Projects will need specific equipment that has to be brought to the lease, counted, and stored, with each step being recorded. It’s not unusual for extra material to be brought for each project. When the project is completed, this also has to be counted up and either sent back to central storage or held on the lease.

A materials transfer sheet is needed whenever materials are moved. When pipes are being moved, a pipe tally sheet will also be needed. Both of these will have some specific fields that need to be filled out. It’s not unlikely that there won’t be a field for an important piece of information, or that there isn’t space to write everything. It’s common practice, in that case, to write ‘OVER’ on the front of the sheet and then add whatever notes are needed to the back. An example of information that’s important to note includes the downgrading of pipe, specifics about storage, or handling instructions. As usual, it’s better to offer too much information than too little.

In some cases, material may be owned as part of a joint venture with another company. This equipment has to be handled carefully. Though some piece of jointly owned equipment may be just the answer you need to a problem, it will usually have restrictions regarding its use; jointly owned equipment is usually reserved for the joint venture. This material has to be carefully kept track of and it should always be clear, both by sight and in the records, what material is jointly owned.

Is your appetite for oil & gas operating knowledge insatiable like ours? 😀 If so, check out these related articles: The Basics Of Keeping Records For Oil & Gas ProductionWell Records For Oil & Gas Production and, Operational Records For Oil & Gas Production Wells – they’ll be sure to pump you up!!!