Managerial Statistics (PRE-MBA) S04

Group Number: 4
Group Name: Karenza Mae Rivera
Lariza Padrinao
Jhanel Trisha Rodil
Yungchen Sun
Topic: Oil Well

In an oil well area of Texas are three automatic pumping units that bring the crude oil from the ground.
These pumps are installed to operate continuously, 24 hours per day, 365 days per year. Each pump delivers 156
barrels per day of oil when operating normally and the oil is sold at a current price of $42 per barrel. There are
times when the pumps stop because of blockages in the feed pipes and severe weather conditions. When this
occurs, the automatic controller at the pump wellhead sends an alarm to the maintenance center. Here there is
always a crew on-call 24 hours a day. When a maintenance crew is called in there is always a three-person team
and they bill the oil company for a fixed 10-hour day at a rate of $62 per hour per crewmember. The data below
gives the operating performance of these three pumps in a particular year, for each day of a 365-day year. In the
table, “1” indicates the pump is operating. “0” indicates the pump is down (not operating).

Pump No. 1 Pump No. 2 Pump No. 3

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 0 1 1 1 0 1 1
1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 1
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 1
1 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1 1
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 1 1
1 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1
1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 0 1
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1 1
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
1 1 0 1 1 1 1 0 1 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 0 1 0
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1 1
1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 0 1 1
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1 1 0 0 1
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 0 1 1 1
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1
1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1 1
1 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1
1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1
1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 1
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 1
1 1 1 1 1 0 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
1 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1 0 1 1 1 1 0 1 1 1
1 1 1 1 1 1 1 1 1 1 0 1 1 0 1

Required
Describe this situation in probability and financial terms.
Given:
3 Pumping Units
156 barrels per day per pump
$42 per barrel
$1,860 total cost per day for hiring maintenance
“1” means pump is operating
“0” means pump is down

Pump 1 Pump 2 Pump 3

Probabilities

Total number of observations (days) 365 365 365

Number of 0’s (number of days the pump is down) 19 14 25

Therefore, number of 1’s (number of days the pump is operating) 346 351 340

Probability that Pump is down 0.0521 0.0384 0.0685

Probability that Pump is operating 0.9479 0.9616 0.9315

Finances- Earnings

Number of barrels of oil produced on each day the pump is

156 156 156
working

Number of Days pump is operating 346 351 340

Total # of barrels of oil produced by Pump in the per days in a year

=156*346 =156*351 =156*340
that it is operating

Barrels produced 53,976 54,756 53,040

Retail Value $ 2,266,992 $ 2,299,752 $ 2,227,680.00

Finances - Expenses

Amount paid per hour to each maintenance team member on a

$62 $62 $62
day the pump is down

Number of days the pump is down 19 14 25

 Number of hours for which each maintenance team member has
10 10 10
to be paid on a day the pump is down

Number of members on the maintenance team 3 3 3

Total amount paid to all 3 members of the maintenance team on

the number of days the pump is down, for 10 hours on each $35,340 $26,040 $46,500
down-day

Finances - Profit

Total profit made by Pump 1 in the year (Total earnings – Total

$ 2,231,652 $2,273,712 $ 2,181,180
expenses = X)

Comparison:
The probability of Pump 1 working in a year is 0.9479, Pump 2 is 0.9616 and Pump 3 is 0.9315. This shows
that in a 365-day interval, pump 2 is less likely to incur more expenses than the other pumps as less
maintenance is required. This has an influence on the manpower expenses and overall efficiency of the pump.

Based on the data on the given year, Pump 2 has the least number of down-days, hence requiring to spend
the least amount on maintenance, and producing more oil than the other pumps. Pump 2 is the most profitable.
It has the lowest maintenance cost and it has the highest barrels produced which is the reason why it is the most
profitable. Contrary, pump 3 is the least profitable as it has the most number of down days, hence, requiring the
largest amount of maintenance compared to the other two pumps. Also, it produces the least number of barrels
of oil in the year. In terms of efficiency, Pump 2 is the most efficient, followed by Pump 1 and the last is Pump
3. It could also be inferred that the no. of days that the pump is working has an impact on the profitability of the
company.