I don't have to hype the next well, but I tell every royalty onwer I know to bank the first three royalty checks, and at least half of the next five, then see what they get because of the decline curves. I explain to them that the production falls off rapidly from IP, and usually ends up at the 150-200 BOPD mark after a couple of years. If they look at the first check and load up for Beverly Hills (Jed Clampett joke), they're liable to come back on a Greyhound when they can't make the payments. Most are older folks who are reasonably careful with their money anyway, and they fare pretty well--they just treat the money like a bumper crop, and don't count on a steady stream of it to continue.
Joe thats exactly what we did. We built one pit by our two water wells then staged 3 more coming around the nth side of the mountains all connected with 4 inch poly lines and polylines running to each well. When we finished we started selling water to Whiting who was drilling nth of us.
I hear ya on the royalty checks I’ve seen several go from riches to rags in just a couple of years. You try and tell them but they won’t listen.
“I explain to them that the production falls off rapidly from IP, and usually ends up at the 150-200 BOPD mark after a couple of years.”
This, btw, is another aspect of the hype. Specifically:
“This oil field is the future of America! It will be producing oil for the next 80 years!”
Be sure to include those exclamation marks. All those wells will be stripper wells in 5 years. In 80, maybe a handful will still do 2 barrels/day. The rest capped and abandoned. But those handful are there and thus “here we are 80 years later, still producing!!”
This is why reserves are not the critical parameter. Extraction rate is the critical parameter because rates are what consumption is all about. Extraction rate (aka production, but I’ve always hated calling it “oil production” — Mother Nature did the producing, the industry is just extracting it) is how one measures oil.
Don’t know if you guys have seen the study. Some Norwegian reasonably smart guy has looked at first 12 month output of Bakken wells now, vs first 12 month output of Bakken wells a year ago and two years ago. Just the first 12 months.
The number is falling. The conclusion he suggests is the low hanging fruit, the highest odds for big flow, were drilled first. Thackney guy up above noted that I quoted 1200 bpd as initial flow and that the graph showed lower. This is likely part of the same thing.
This field is just flat out overhyped.