Outrun Change

We need to learn quickly to keep up with the massive change around us so we don't get run over. We need to outrun change.

What’s it cost to run an oil well for a year?

I’ve been wondering about that. Million Dollar Way quotes some comments from a Google Discussion Group that gives some info: Monthly Costs For Maintaining An Active Well…

Most companies estimate production costs at $6,000 to $8,000 per month per well…or $70,000 to $100,000 per year.

Keep in mind that a majority of wells require a week or more of maintenance each year with a workover rig with support equipment and crew at $10,000 plus per day.

You also have significant power costs in addition to general lease operations. A 6-8 well pad could easily require $750,000 to $1 million per year to keep everything in top condition to maximize production without any major operational downhole problems.

Since I’m an accountant, I’ll convert that background into a specific calculation adding in a few of my assumptions.

  • Production costs – 6K to 8K per month – 72K to 96K per year
  • Workover rig for maintenance – 5 to 8 days with cost of $11k to I’ll assume $14K per day – 55K to 88K to 112K
  • Electricity – cited as significant – I’ll make a wild guess of 5K a year
  • Royalty – function of production and price
  • Lease operation – allocated to wells; full absorption accounting is way beyond scope of these brief comments.

So here is a low, medium, and high estimate of the cost for one well.

  • 132K = 72k + 55K + 5K
  • 165K = 72K + 88K + 5K
  • 213K = 96K +112K + 5K

As a starting point for a multi-pad site, you could multiply that by the numbers of wells on the pad. There are probably some efficiencies from servicing and maintaining multi-pad sites but I don’t have the foggiest idea how much.

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