If you could make an investment in a productive asset that would have a gross return just under four times your initial amount in 12 months, would you care how quickly the investment fell apart after that?
Let me be more specific. If you could invest $8M in an oil well that produced $30.7M of oil in the first 12 months of production, would you care how fast the production dropped after that? Would you care if the well had that horrid Bakken decline rate?
I didn’t think so. Neither would I. If you recover your initial investment and have a pretty profit in 12 months, ya’ done good.
Million Dollar Way provides lots of discussion, including monster wells. On 4/26, the coverage was of Another EOG Clarks Creek Well Has Been Added to Monster List of Wells.
Let me summarize some of the info. The well had an initial production rate of 2,365 bopd. In 24 days of producing in March 2013, it averaged 1,804 bopd. In 12 months, it has produced 353,626 barrels.
The production has dropped by 2/3rd in a year. TWO-THIRDS! The horror!
Oh wait. Let’s try another perspective.
It’s already produced $30 million of oil and is still going strong.
Here’s some numbers.
I’ll round off the spot rate of oil using the Director’s Cut for March, which is $86.69, at $87 even and use that for all the following calculations.
First month of production the well had 43,290 barrels in 24 days, which is $4.24M. First month.
In 12 months, 353K barrels is $30.77M.
Production in the latest three months (12/13, 1/14, 2/14) is an average of 658 bopd. At an average production days of 29 days per month (my assumption), that would be $1.66M going forward.
Cost of a well in Bakken is in the range of $7M or $8M, according to what I read at Million Dollar Way.
The well will produce nicely for another what, year or two?, and then taper off quickly.
So that’s a picture of what a good well looks like.