I am just not buying your one year payout. There may be a couple percent of monster wells where this is true, but not true for the average Permian well.
Although the story is different for each basin, various parts of the basin and various operators (based on their competency) here is a way of looking at the math.
Rystad did a break-even analysis for the Permian and Bakken in February of this year and arrived at 2016 breakeven costs for the Permian of $33/bbl and for the Bakken of $29/bbl. That means at $57/bbl WTI operators would net back $24/bbl in the Permian and $28/bbl in the Bakken. They also pointed out that drilling and completion costs on average in the Permian basin were $5.2 MM and in the Bakken $5.9 MM.
Rates from last year for both basins are all over the place given some wells were either drilled in poor places or just badly completed and others seemed to get the best of both worlds. As an example, EOG reported many wells last year with high initial production (eg: IP rates of 3455 bopd and 6.4 MMscfd and 3909 bopd and 5.3 MMscfd) as did Whiting (7800 boepd). Indeed there are many wells in both basins where the average annual first-year production rate is 1000 bopd. However when you take into account the poorer wells the averages for the Permian basin in the first year are around 600 bopd and for the Bakken 550 bopd (Oil and Gas Journal) which takes into account the steep first year decline from IP rate.
So looking at the Bakken first that amounts to $5.6 MM net cash flow for the first year based on oil only and for the Permian $5.2 MM. This is not far off the Rystad number for total D&C cost for these wells and one has to remember by doing this sort of reverse engineering way of looking at things it adds costs beyond the first year of production into the breakeven cost calculation hence the estimated first year cash flow should realistically be higher. This supports the one-year payback. And of course, the better wells that EOG and Whiting reported payback in a few months time.
We could also attempt to build this up from the bottom.
Drill cost $5.2 MM
Opex $3500/month/well
G&A $3/bbl
Transportation $1.00/bbl
First year production at 600 bopd average daily is 219,000 bbls
Net back revenue first year is $5.3 MM
Total opex is $42,000
Total transportation is $219,000
Net free cashflow would be $5.0 MM in the first 12 months, close to payout.
Of course if you want to take the Berman methodology and focus only on the bad wells where there is no way of telling if they were drilled or completed correctly then you will end up with long payouts.
so Rystad is saying the cost for drilling is lower than you are using, and Oil and Gas Journal is suggesting in 2016 average IP rates are much higher. Along with the decent netbacks Rystad calculates this results in early payback.
