On a January night in McKenzie County it was 31 below with wind. By 2 a.m., six of Northern Tier Oil's 24 gas-lift compressors had frozen off. The lease operators got them back one by one, but the last one ran again 14 hours after it stopped.
The next morning, the foreman asked the right question: how much of our guarantee did that use?
The allowance is smaller than it sounds
A 98.5% guarantee sounds generous. In a 31-day month it allows each unit:
Show the mathHide the mathHow each figure above is worked out, step by step.
Each unit may be down11 h 10 m
- Hours in the month31 days × 24 h744
- Down hours allowed per unit744 h × (100% − 98.5%)11 h 10 m
On average22 min a day
- Hours in the month31 days × 24 h744
- Down hours allowed per unit744 h × (100% − 98.5%)11.2 h
- Minutes a day, on average11.2 h ÷ 31 days × 6022 min a day
One 12-hour outage uses108%
- Hours in the month31 days × 24 h744
- Down hours allowed per unit744 h × (100% − 98.5%)11.2 h
- Share a 12-hour outage uses12 h ÷ 11.2 h108%
So the six units that froze were past their allowance before the sun came up, with 30 days of winter still to go.
The credit will not cover it
Every hour beyond the allowance earns a credit of $6.99 per unit at $5,200 a month in rent. Six units, each a few hours over, come to a little over a hundred dollars.
The oil those six units stopped lifting for 14 hours, at 90 barrels a day each and $68 a barrel, was worth about $21,400.
What Northern Tier does before the first freeze
- Heat trace and insulation checks on every unit in October
- Callout times logged the moment a unit goes down, from the truck
- A winter review with the vendor on who carries freeze-off risk
- Guarantee
- 98.5%
- Days in the month
- 31 days
- Units
- 24
- Monthly rental
- $5,200