How Much Money Can You Make From An Oil Well?

Continuing from where my terminal commodity left off, nosotros are going to take an in-depth look at the economics backside drilling and completing a horizontal well in a sugariness spot inside the Permian Basin. In this example, we will accept one of the best wells Ovintiv is currently producing and create an estimate for how much profit the company is making per month. This blazon of information is e'er kept secret just with a quick google search and the right skillset, information technology'due south possible to go decent idea of the economics. Our outset pace will be to investigate the costs associated with Ovintiv's best producing oil well.

COSTS

From my terminal article, we run across that Ovintiv's top producing well is located on the DFK 319C Lease with a well number of 1502HE that produced 2,689 BOPD out of the Spraberry Tendency Expanse. We first will need to go an estimate for the leasing toll associated with just having the right to drill on the land. At that place are a few figures I will pull from this article I googled below.

In this article, information technology claims that leasing in the Permian averaged around $24,000 and that U.Southward. Shale acreage has dropped from $17,000 to $5,000 over the past couple years. Back when Concho bought over RSP Permian Inc in 2018 they paid them $75,504 per acre. As a side notation, I wasn't very happy with my investments in Concho when ConocoPhillips bought this acreage for $10,471 an acre. In my evaluations I prefer to be extremely conservative so let's guess leasing costs to be $xxx,000 per acre. I pulled upwardly Ovintiv'due south P-16 filed with the Rail Road Commision (RRC) and in the picture below you lot can run into the 473.37 acres allocated to this well. This makes our leasing cost for this well to exist effectually ($30,000 * 473.37 = $14,201,100 or $xiv.ii meg)

Our next item will be to estimate drilling and completions which Ovintiv has really helped us out with in one of their publicly bachelor financial reports below.

In this report it states that drilling and completion costs averaged $470 per foot. Looking back at information from the RRC/ DrillingInfo, we can see that this well nosotros are investigating had a measured depth of 20,168 feet. The True Verticle Depth (TVD) was 9,262 feet with an 11,421 foot lateral. We'll gauge drilling and completions to be $9,478,960 = (xx,168*470) or $ix.5 meg for simplicity. There are many ways to get an accurate charter operating expense especially if y'all piece of work in the industry and know how to estimate this. I have to stick to publicly available data and then nosotros volition use the fiscal report higher up that shows an average $/BOE lease operating expense to be $eleven.60. Going dorsum to our ii,689 BOPD effigy we merely multiply this by $eleven.60 to go a LOE cost of $31,192 which will be on the high side for such a great well. At this point nosotros accept all of our costs and can move on to the next footstep!

Reserves/ Cash Flow

This next footstep is the most complicated and has the most interpretation involved. DrillingInfo has an awesome characteristic that can give you an estimate using decline curve analysis but this well will not qualify since it has not been producing for four months. Instead nosotros tin can look at the lease every bit a whole or other wells in the area to figure out a good curve to utilise to the initial production. Y'all may look into Decline Curve Assay if you desire to acquire more well-nigh this process just I volition just show you the curve I came up with below. This tin exist washed with excel, figurer programming, or software packages such as PHDWin. I may show y'all how to do this in excel in a hereafter article!

Above is the MABEE P Lease located near the well nosotros're interested in. There are 15 wells on this charter and you can see how each i added creates a step up in production. I just want to get an idea of the bend created by an boosted well and apply it to our single example below.

Now that nosotros have our oil and gas production nosotros accept sufficient information to run a cash catamenia on the well. Keep in listen that the total investment for this well from drilling, completions, and leasing has totaled $23.vii One thousand thousand ($nine.5 Million + $14.ii One thousand thousand).

Take a moment to reflect on some assumptions that were made in this assay. Nosotros are assuming the Lease Operating Expenses based off the average cost per barrel of oil produced. Past taking one of Ovintiv's best wells we know that we are going to exist overshooting the operating expenses on such a cracking well. Instead of $30,000 we could realistically be looking at $15,000 or less per month. I chose $50 oil and $2 gas because I like these values right at present. If I were to run a reserve written report for a publicly traded company there are strict guidelines for how I set oil and gas prices. Y'all also have leased a huge acreage of land and there are added leasing costs for those unproductive areas you'll demand to makeup for. There are many more assumptions made such equally royalty interest, tax, and depletion just let's bound to the cash menstruation created below with a program chosen ProdEval.

If you're wondering why nosotros used a discounted rate of x%, it has to do with the time value of coin and knowing that I could brand x% off the stock market place on a yearly basis. From this greenbacks flow we would judge this well to gross Ovintiv 1.seven million barrels of oil and generate them at least $25 1000000 over the form of xviii years. After payout in a year and a half this well volition simply exist generating free cash flow for Ovintiv to use in drilling more wells. With better oil prices and a reduced lease operating expense this well could hands net an additional $x million for Ovintiv.

Do me a favor and like this article if you institute information technology interesting and experience free to leave me a comment well-nigh your thoughts on information technology. My goal is to release a new commodity every couple weeks on Thursday's. Look forwards to my next i!

*Disclaimer: I had a great conversation virtually this article with ane of my connections on the ultimate recovery for this well. It's possible instead of 18 years we may merely go 10 years from this well due to fluid mechanic issues associated with these long laterals. In this case nosotros can end our greenbacks menses early and lose about $3 million. Still very profitable simply definitely something to consider.

How Much Money Can You Make From An Oil Well?,

Source: https://www.linkedin.com/pulse/secret-how-much-money-can-horizontal-well-profit-you-stan-logie

Posted by: brinsonhosseed.blogspot.com

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