Posted on 04/14/2012 4:21:54 AM PDT by thackney
The North Dakota Industrial Commission, Department of Mineral Resources, has released a new and higher average cost for drilling and completing Bakken wells in North Dakota.
Lynn Helms, director of the department that includes the state’s oil and gas division and geological survey, is now quoting $8.5 million for drilling and completing a Bakken well, versus the $7.3 million estimate he used in a December presentation, and the $6.6 million figure he used in August. (See related story on well costs on page 1 of this issue.)
The latest estimate is in a slide he used in a March 20 presentation to the North Dakota Legislature’s Energy Development and Transmission Committee, titled “What Does Every New Bakken Well Mean to North Dakota.”
Helms told legislators that oil companies are using a “flat $86 per barrel” for their “forward economics.”
If the oil price “drops to $55 per barrel we’ll lose rigs and that will put us on the black curve,” he says.
A typical 2012 North Dakota Bakken well will produce for 29 years, producing an average of 580,000 barrels of oil.
The life of the well can be extended, Helms notes, with enhanced oil recovery efforts.
That cost may start coming down if the drillers can switch to powering their rigs with natural gas, as is being done in other places. It’s a big initial investment for the rig operators to switch their pumps, generators and trucks to NatGas, but with NatGas prices at an all time low now that payback is just a few years.
Also, as SD/ND/MT catch up on infrastructure (housing, etc.) the premiums being paid to woo employees should subside to some extent.
if the drillers can switch to powering their rigs with natural gas, as is being done in other places.
- - - -
Drillers dropping diesel for cheaper natural gas
http://freerepublic.com/focus/f-news/2871111/posts
Check out the newest shale deposit now being drilled:
Estimates range from 3 to 7 billion barrels of recoverable oil plus natural gas in a area where a lot of infrastructure needed to get the oil and natural gas to market already exists!
If the reason for the cost increase is scarcity as a result of the rate of increase for new drilling, the natural gas may not have much of an effect.
So long as the rate of new drilling increases, the cost can be expected to rise. A decrease in the rate could be expected to result in somewhat lower costs.
You are not accounting for operating costs.
Still the present value (PV) of 500,000 barrels @ $29/ barrel, for 29 years, at 10% real interest is north of $300,000,000 smackers. You’d need HUGE maintenance and operating costs to make that investment unattractive.
Or the fear of unfavorable government intervention.
I over estimated the well cost and under estimated total production (according to their estimates). If you’re going to consider such things as business climate, then please also include the likelihood that the market price for oil will also increase. Maintenance costs aren’t that huge, relatively speaking. The one thing I didn’t include were transportation costs and their total average production numbers seems quite high to me. I’m beginning to think there is a bit of hype concerning the Bakken play. :)
Oops, sorry... I see you did. ;)
That is the price to put the hole in the ground. If you want to connect it to production, separate the oil, gas and water produced, pay the energy to run pump, pay the labor to keep all of that running, that is extra. Plus you need to pay the lease and exploration to find that next production or you are going out of business.
Palin: Drill baby drill
Obama: ahhhhh....errrrr....ummmm...can’t we just use Solyndra?
Or the fear of unfavorable government intervention.
From one of the few bright spots in today's economy straight into the heart of darkness!
If you think the cost of making the hole in the ground is the majority of the cost to bring oil to a selling point, you are quite naive. I’ve spent my career on what comes after the well. Far more dollars are spent on infrastructure, operation and maintenance than the drilling and completion.
It’s just a back of the napkin estimate to begin to examine what they were quoting. It wasn’t intended to be used to run the company, just what the oil costs to get it out of the ground. Certainly their $86 a barrel cost is pretty stupid for land production.
THANK YOU!!
I am sorry but you don’t begin to understand the industry if you think you captured even half the cost including your “overestimations”.
Posted on Thursday, January 12, 2012 2:19:03 PM by thackney
On average, it costs ConocoPhillips $15.48 to produce a barrel of oil in Alaska compared to $12.32 per barrel in Canada, $10.24 per barrel in the Lower 48 and $10.15 per barrel in the North Sea. The company’s production in the Middle East costs $6.98 per barrel, Kah said.
Like I commented, $86 dollars a barrel seems a tad high for Bakken oil.
From the article: The North Dakota Industrial Commission, Department of Mineral Resources, has released a new and higher average cost for drilling and completing Bakken wells in North Dakota.
You are not close to the real cost. Go read an 10-k or annual report. These companies make 6~9% typically. If it was the gold mine you suggest, all the folks with oil stocks in 401ks and mutual funds would be driving Rolls Royce.
The $86 isn't the total cost, it was the economic planning number including profit, etc.
The $55 dollar number is where you would see people deciding it wasn't worth it. And that includes assumptions of expected higher values at a latter date.
Read the next line of the article you quoted (which I posted)
“The figures for operating costs come out of ConocoPhillips’ financial reports and do not include taxes, capital investments or transportation costs.”
That is just what it cost to operate it after you build it. You also have to pay lots and lots of taxes (typically 3 times profit, higher in Alaska) and then pay to move the oil to market.
My guess would be to double your initial number to build all the top ground facilities, then add your quoted number on top. Then you approach cost to get oil at the beginning of the pipeline.
My guess would be to double your initial number to build all the top ground facilities, then add your quoted number on top. Then you approach cost to get oil at the beginning of the pipeline.
LOL!
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.