Back of the envelope calculations for drilling one well in the Bakken and value of annual production

Update: Bottom line on the back of the envelope – 1.9 year breakeven point.

I’ve been wanting to do some math on the economics of drilling. Now’s the time.

UPDATE – Revised for higher productivity of Bakken wells of 142 barrels per day.

Previous post provided some data from an article in the Chicago Tribune for Occidental Petroleum – Insight: Peak, pause or plummet? Shale oil costs at crossroads

Here’s the data from yesterday’s post:

• \$85.24 – low bid for June delivery
• \$8,500,000 – Cost to drill one well

Here’s some production data:

• 87 barrels per well per day – average daily production per well in March

So here’s my math:

Time to breakeven:

• \$85.24 low bid per barrel
• x 87 barrels per day
• = \$7,416 average daily revenue per well
• / \$8,500,000 cost to produce one well
• = 1,146 days to break even at current drilling costs, assuming no production costs
• = 3.1 years to breakeven

Breakeven at the costs from 2010:

• \$6,500,000 cost to drill one well in 2010
• = 876 days to break even at 2010 drilling cost with today’s low bid assuming no production cost

Oh, and remember that revenue stream from each well will continue for a few decades.

Revenue from drilling:

• 576,490 barrels produced in March 2012
• \$85.24 low bid
• \$49.1 million – revenue from oil produced daily
• \$17.9 billion, yes billion – annual revenue at March production rates and low bid

Way cool.

Current annualized production of \$18 billion. No wonder companies are flocking to the Dakotas.

Update for higher productivity of Bakken wells compared to others in North Dakota.

Later post points out that the Bakken wells are far more productive that the other wells in North Dakota. Here is a new calculation:

Time to breakeven:

• \$85.24 low bid per barrel
• x 142 barrels per day
• = \$12,104 average daily revenue per well
• / \$8,500,000 cost to produce one well
• = 702 days to break even at current drilling costs, assuming no production costs
• = 1.92 years to breakeven

Breakeven at the costs from 2010:

• \$6,500,000 cost to drill one well in 2010
• = 537 days to break even at 2010 drilling cost with today’s low bid assuming no production cost
• = 1.47 years to breakeven