Outrun Change

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Back of the envelope calculation for the total drilling investment per month in Bakken and the possible revenue over the next year

Here is a wild guess on what a month’s worth of production might cost and the value of oil produced in the next 12 months for the Bakken field.

The drillers are investing far more than a billion dollars per month. My estimate is the new wells drilled in one month will produce gross revenue for the next year’s production in the range of 1 billion or 3 billion dollars.

These are wild guesses because they are based on the things that I have read. Anybody with hard numbers, like the executives and accountants for a drilling company, won’t be sharing them because that’s exquisitely valuable, proprietary information. I have no idea of hard numbers, so here’s my guess.

How much money is being invested every month? I’m guessing between $1½ billion and $2 billion per month. My point estimate is $1.8 billion.

What’s the possible revenue in the next 12 months from the wells drilled in one month? Possibly in the range of $1 billion up to $3 billion. That is the gross, and does not back out costs of production, royalties, and extraction taxes to the state.

The reason for that range is I’m not sure how much oil a new well produces. As I have mentioned before, the average production for wells in the Bakken region is about 142 barrels a day, with a trend up, which means the new wells are more productive than the average.

The article I mentioned here suggest new wells could start at 923 barrels a day and drop to half that in a few years.  Seems to me if that was the rate across the play then the production data for would be higher than the previous paragraph indicates because most of the wells are so new. So I will use about half of that 923 amount.

So my point estimates at 142 barrels a day and 500 barrels a day at $85 are anywhere from $947M in the next year up to $3,335M in a year.

No wonder the drilling activity is so high.

I will show my calculations so anyone who wants to do so can second guess them or fine tune them based on what you think are better estimates:

 

 Monthly   investments in new wells in North Dakota:
 $                 8.5  estimated cost per well (in millions)
                   215  wells rigs running in North Dakota, 7-1-12
 $            1,828  investment in wells per month (in millions)
 Guess at annual gross revenue from wells drilled in one month
                   142                        500    barrels per day
                     85                            85  assumed revenue per barrel
             12,070                  42,500  monthly daily revenue per well
           362,100            1,275,000  new oil production per 30-day month
       4,405,550          15,512,500  new oil production per 365-day year
                   215                        215    new wells per month
   947,193,250    3,335,187,500  new revenue in the next 12 months from one month worth of new wells
                   947                     3,335  annual revenue from one month of new wells, in millions

 

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One thought on “Back of the envelope calculation for the total drilling investment per month in Bakken and the possible revenue over the next year

  1. Pingback: Forecasts for Bakken field. Part 1 « Outrun Change

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