Lucas Energy, an independent oil and gas company based in Houston, Texas, has implemented cost reduction initiatives.
During the current period of lower oil prices, Lucas Energy, Inc. has implemented initiatives to reduce expenses of overhead and field operations. These cost reduction initiatives are expected to have a positive effect on the P&L for the 4th quarter of the fiscal year. Specific reductions have been made in overhead, lease operating expenses, and capital expenses during January and February 2009. Some of these expense cuts are discussed in the following paragraphs. Please bear in mind that these are non-audited numbers.
Reduction of Expenses
Recurring G&A expenses were reduced by approximately 25% during the first two months of the Company's fourth quarter (January thru March) of fiscal year 2009 as compared to the monthly average for the third quarter (October thru December). Certain non-recurring G&A expenses such as non-cash compensation, and some cash compensation, related to the final settlement of the contract with the previous President and CEO are not included in these figures. Most of the expense reduction was due to compensation of executives and to the hiring of an in house financial consultant who was able to reduce the cost of our accounting and audit programs.
Recurring lease operating expenses (LOE) are those expenses for operating wells such as gauger, electricity, water hauling, etc. During the first two months of the fourth quarter of 2009 Lucas was able to reduce these expenses by approximately 36% over the monthly average for the third quarter. Conversion of several of the producing wells from gas engines to electricity accounted for much of the expense reduction. There was some expense reduction due to shutting in wells not performing economically. The shut in wells are either on leases identified as not having future potential within the business plan of Lucas, or wells on leases still in their primary term.
Non-recurring lease operating expenses are workovers to improve production, treatments to improve production, and workover due to unusual maintenance problems. Lucas was able to reduce the non-recurring expenses by approximately 20% during the first two months of the 4th quarter 2009 as compared to the monthly average for the 3rd quarter. Further, a major component of the February 2009 non-recurring expenses was large soapy water treatments which are performed to improve production and which were not performed in the 3rd quarter. If these soapy water treatments are excluded from calculations, then the expense reduction is approximately 65% comparing the first two months of the 4th quarter 2009 with the monthly average of the 3rd quarter.
Lucas Energy, Inc. has developed a business plan in three stages. The focus of the business plan is the acquisition of oil wells; shut in, low producing, or plugged and abandoned; for minimal cost with a focus to the future on the development of new laterals in the current producing formation, and other formations which may be proved up in the future. The business plan has three phases.
Phase I is the acquisition of properties in our core area, around Gonzales County, Texas, and putting shut in or plugged wells back on production. This was the original business plan of Lucas Energy, Inc. and has allowed us to acquire more than 10,000 acres of mineral leases, most held by production.
Phase II is focused on improving production from current well bores. Lucas plans to do this in two ways. The first is to clean out the old laterals with a workover rig, acid treatments, and soapy water treatments. The second method is to drill straight down to test the Buda and Eagleford Shale formations beneath the current Austin Chalk completions. Lucas does have two producing Buda wells in Gonzales County, Texas but does not, currently, include any undeveloped Buda (or Eagleford Shale) reserves in its evaluation.
Phase III is the drilling of new laterals to bring on production the proved undeveloped reserves which have been identified by its independent engineering firm, Forest A. Garb & Associates, Inc. of Dallas, Texas. A new evaluation will be performed after March 31, 2009, our fiscal year end.
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