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Page added on June 16, 2017

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How A $200,000 Well Could Drastically Change The Oil Industry


Technological upheavals in the oil sector will make it possible for mini-producers to market crude profitably, creating new competition for bloated fossil fuel companies accustomed to benefitting from their largesse.

It takes serious cash to start an oil and gas exploration company the traditional way. A single well in the Permian Basin – recognized as the most cost-effective drilling area as barrel prices recover enough to support new rigs – currently costs between $5 million to $9.3 million to operate, depending on the well’s depth. And while logistical tricks and fracking R&D allow oil and gas companies to stretch the productive lifespan of their wells, those efforts only add to the sites’ operational costs.

Average estimated costs for wells—as of 2015—in the Marcellus ($6.1 million), Bakken ($5.9 million) and Eagle Ford ($6.5 million) formations are just as pricey, because the economies of scale model has dominated the oil sector for decades, with deep-pocketed investors bankrolling the fossil fuel giants in their early years, after which profits from refined goods cover increasingly ambitious projects spanning states, nations, and eventually continents.

But three years of low oil prices have brought even large oil companies to their knees, forcing liquidations of billions of dollars in assets to plug bleeding bottom lines. Then in 2017, more stable Brent barrel prices in the $45-$55 range prompted an increase capital expenditures, but at most, by seven percent, according to Barclay’s recent report on the matter.

That’s a single-digit recovery after the 2014 market crash slashed capex budgets by 60 percent industry-wide.

This small capex increase on behalf of Big Oil is a telltale sign that the largest companies in the industry aren’t ready to take full advantage of expansion opportunities in the U.S. oil patch—at least not at this price point.

Meanwhile, operational improvements will lead drillers to cut costs further—all drillers, small and large—and the cost-cutting activity is sure to level out the playing field, at least somewhat, as previously out of reach costs become more tenable for the smaller players in the industry.

For starters, fully utilizing data collected from rigs would lead to drastic savings, according to a recent analysis in the Harvard Business Review. Less than one percent of the information is used in decision-making today. Deeper wells, automated drills, and robots that can fix underwater pipelines will all play a part in the oil industry’s future.

Agile mini-producers—piggy-backing off advances that are tried and tested by the big boys—will add to the international race to out-hack the oil extraction process. The modern-day David and Goliath story could begin once a single Silicon Valley tech company figures out how to harness software and hardware advances to create an effective well for just a few hundred thousand dollars. With significantly lowered costs, even the smallest in the industry would be able to take part.

The proposition sounds outlandish now, but only because of the exorbitant rates entrenched oil companies generally pay for wells, drills, and oilfield services. Costs for those facilities are just assumed to be in the millions—so much so that the Chevron’s and ExxonMobil’s of the oil world don’t bat an eye signing checks for the expenses—while smaller players in the field couldn’t even consider such an investment.

A lean tech company could make an effective comparable product at a shockingly low price point, forever transforming the industry’s cost formula for essential equipment.

This has already happened in other industries, with Elon Musk’s Space Exploration Technologies, or SpaceX, putting this very kind of pressure on United Launch Alliance and its monopoly on U.S. Air Force contracts by winning a $96.5 million contract to launch a GPS satellite. The Boeing-Lockheed joint venture, accustomed to contracts worth hundreds of millions of dollars, had been drastically undercut by SpaceX’s in-house engineering and manufacturing facilities.

Market pressures on high-cost operators will continue to be an issue as the world approaches peak oil demand anytime between 2025 and 2030. Freshly incorporated mini-producers, equipped with lighter, smarter rigs will soon outmaneuver oil companies with sunk capital in old-school rigs, changing the oil industry forever.

10 Comments on "How A $200,000 Well Could Drastically Change The Oil Industry"

  1. rockman on Fri, 16th Jun 2017 10:18 pm 

    So where the f*ck is the “$200,000 well” in the title of this piece of crap? I imagine everyone was holding their breath for that punchline. LOL. First, regardless of how low drilling and frac’ng cost !right get the hardware (well heads, casing, production tubing and surface production equipment easily runs $1 to $2 million. And if more wells are drilled because it becomes cheaper to do that cost increases.

    And now proof that the idiot writing this crap knows nothing about the drilling business: “…a recent analysis in the Harvard Business Review. Less than one percent of the information is used in decision-making today.” The drilling prognosis of virtually every well drilled is based upon data collected frtom similar wells drilled in the area. Even though much of the data is available from state regulators for free here are numerous companies that accumulate such data which operators can access for a modest monthly fee. The Rockman can sit at his computer and just by clicking his mouse for 60 seconds he can download many thousands of data points from the closets 30 wells to his proposed well.

    And there’s plenty of other free help available. One critical data to analyze is the details of the drilling mud program used in offset wells. The Rockman might ask 5 different mud companies to design a mud program for my proposed well. And they do this for free because they need to generate a cost bid in hopes of winning the job. To do this the acquire the “mud recaps” of those offset wells from various sources. The Rockman follows the same process with the mud logging companies, the drill bit selling companies, the wireline logging companies, the wellhead sales companies, etc, etc.

    After all the offset data is accumulated it’s put together in a binder including the detailed “drilling prog”…drilling prognosis. Typically it’s 60 to 100 pages. And then it becomes the center piece of the “prespud meeting”. That is the gathering of the 10 to 15 service companies that will provide the labor and materials used to drill the proposed well. And all the offset data is reviewed for everyone’s benefit…typically 3 to 5 hours.

    This asinine piece of sh*t article is trying to give the impression we just put a rig on location, start drilling and wait to see what happens.

    FYI: In 41 years being involved in the drilling of 100+ wells the Rockman has not seen a single operator ask the opinion of anyone at Harvard. LOL.

    OTOH maybe we should have. After all drilling an 8 1/2″ hole through a rock shares a lot in common with putting several hundred thousands of spaceship into orbit around the planet. After all such improvements have “already happened in other industries, with Elon Musk’s Space Exploration Technologies, or SpaceX.”

  2. MASTERMIND on Sat, 17th Jun 2017 7:16 am 

    Collapse of Global Civilization by 2020-Irrefutable Evidence

  3. MASTERMIND on Sat, 17th Jun 2017 7:19 am 

    US Shale the biggest joke ever

  4. MASTERMIND on Sat, 17th Jun 2017 7:19 am 

    US Shale the biggest joke

  5. rockman on Sat, 17th Jun 2017 9:40 am 

    Master – First, your post has nothing to do with this thread. Folks here generally don’t care to see any thread HIJACKED even if they agree with the misplaced post. Second, how many conventional wells it takes to produce 1 million bopd compared to shale wells has no relevance to the US refinery requirement of the lighter oils from the shale trends. But if you want to discuss that dynamic there are a number of existing threads to do so. Threads where the FULL DOCUMENTATION of the FACT that the light oils from the shale trends are critical to the US economy has been posted numerous times.

    But, by all means, disagree with that statement if you feel it’s not valid. But do everyone a favor (including yourself) and do so in the proper place.

  6. denial on Sat, 17th Jun 2017 11:29 am 

    One of the things that this does not touch on very much is the hidden cost….cost to lease the land, build roads, taxes, materials. As the sweet spots dry up as they have already been drilled I believe it will take more money and equipment to find it….You can see this in the amount of equipment it takes to get shale versus oil that on the top of the ground….this article sounds like an infomercial trying to get people to buy into….

  7. rockman on Sat, 17th Jun 2017 2:00 pm 

    denial – “…I believe it will take more money and equipment to find it.” So true. Take for example the sandstone reservoir I’m redeveloping with hz wells. Paid for the lease, built a lease road and drilled a well. Second well: no lease money and used same road. Third well: no lease money and used same road. Fourth well: no lease money and used same road. Then as water production increased used third hole (a pilot hole not meant to be a producer) as a salt water disposal well: no lease money and used same road. And the SWD well takes water from both producing wells.

    Had all the drilling been done on different leases the total cost would have been at least 40% higher.

  8. Anonymous on Sat, 17th Jun 2017 9:02 pm 

    No payoff for the $200,000 well title. Junk article.

  9. ALCIADA-MOLE on Sun, 18th Jun 2017 7:32 pm 

    i can probably do it with just 5k

  10. bobinget on Mon, 19th Jun 2017 5:07 pm 

    Water wells are now costing $200,000 and more.

    Soon, we will be hunting water the way we’ve learned to hunt gas and crude.

    Old timers, (now gone) used to point to our surrounding hills and claim billions of gallons of water kept 19 century miners from economically mining coal and metals.
    Joke: DJT runs up to a coal face crying “mine”.

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