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PN Bakken: Helms: well costs up, industry uses $86 oil, at $55 lose rigs
Petroleum News ^ | Week of April 15, 2012 | Kay Cashman

Posted on 04/14/2012 4:21:54 AM PDT by thackney

The North Dakota Industrial Commission, Department of Mineral Resources, has released a new and higher average cost for drilling and completing Bakken wells in North Dakota.

Lynn Helms, director of the department that includes the state’s oil and gas division and geological survey, is now quoting $8.5 million for drilling and completing a Bakken well, versus the $7.3 million estimate he used in a December presentation, and the $6.6 million figure he used in August. (See related story on well costs on page 1 of this issue.)

The latest estimate is in a slide he used in a March 20 presentation to the North Dakota Legislature’s Energy Development and Transmission Committee, titled “What Does Every New Bakken Well Mean to North Dakota.”

Helms told legislators that oil companies are using a “flat $86 per barrel” for their “forward economics.”

If the oil price “drops to $55 per barrel we’ll lose rigs and that will put us on the black curve,” he says.

A typical 2012 North Dakota Bakken well will produce for 29 years, producing an average of 580,000 barrels of oil.

The life of the well can be extended, Helms notes, with enhanced oil recovery efforts.


TOPICS: News/Current Events; US: North Dakota
KEYWORDS: bakken; energy; oil

1 posted on 04/14/2012 4:22:00 AM PDT by thackney
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To: thackney

That cost may start coming down if the drillers can switch to powering their rigs with natural gas, as is being done in other places. It’s a big initial investment for the rig operators to switch their pumps, generators and trucks to NatGas, but with NatGas prices at an all time low now that payback is just a few years.

Also, as SD/ND/MT catch up on infrastructure (housing, etc.) the premiums being paid to woo employees should subside to some extent.


2 posted on 04/14/2012 4:28:42 AM PDT by CarmichaelPatriot
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To: CarmichaelPatriot

if the drillers can switch to powering their rigs with natural gas, as is being done in other places.

- - - -

Drillers dropping diesel for cheaper natural gas
http://freerepublic.com/focus/f-news/2871111/posts


3 posted on 04/14/2012 4:33:33 AM PDT by thackney (life is fragile, handle with prayer)
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To: thackney
$10,000,000 (well cost) / 500,000 (total barrels produced) = $20.00 Barrel

Check out the newest shale deposit now being drilled:

http://ameliaresources.com/documents/tuscaloosatrend/Amelia%20Resources%20LLC%20TUSCALOOSA%20MARINE%20SHALE%20Play%20Overview%20MAR%202012.pdf

Estimates range from 3 to 7 billion barrels of recoverable oil plus natural gas in a area where a lot of infrastructure needed to get the oil and natural gas to market already exists!

4 posted on 04/14/2012 5:20:20 AM PDT by Errant
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To: CarmichaelPatriot

If the reason for the cost increase is scarcity as a result of the rate of increase for new drilling, the natural gas may not have much of an effect.

So long as the rate of new drilling increases, the cost can be expected to rise. A decrease in the rate could be expected to result in somewhat lower costs.


5 posted on 04/14/2012 5:28:17 AM PDT by bert (K.E. N.P. +12 ..... Crucifixion is coming)
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To: Errant

You are not accounting for operating costs.

Still the present value (PV) of 500,000 barrels @ $29/ barrel, for 29 years, at 10% real interest is north of $300,000,000 smackers. You’d need HUGE maintenance and operating costs to make that investment unattractive.

Or the fear of unfavorable government intervention.


6 posted on 04/14/2012 5:32:23 AM PDT by Lonesome in Massachussets (Queeg Olbermann: Ahh, but the strawberries that's... that's where I had them.)
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To: Lonesome in Massachussets

I over estimated the well cost and under estimated total production (according to their estimates). If you’re going to consider such things as business climate, then please also include the likelihood that the market price for oil will also increase. Maintenance costs aren’t that huge, relatively speaking. The one thing I didn’t include were transportation costs and their total average production numbers seems quite high to me. I’m beginning to think there is a bit of hype concerning the Bakken play. :)


7 posted on 04/14/2012 5:43:34 AM PDT by Errant
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To: Lonesome in Massachussets
then please also include the likelihood that the market price for oil will also increase.

Oops, sorry... I see you did. ;)

8 posted on 04/14/2012 5:47:21 AM PDT by Errant
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To: Errant
$10,000,000 (well cost) / 500,000 (total barrels produced) = $20.00 Barrel

That is the price to put the hole in the ground. If you want to connect it to production, separate the oil, gas and water produced, pay the energy to run pump, pay the labor to keep all of that running, that is extra. Plus you need to pay the lease and exploration to find that next production or you are going out of business.

9 posted on 04/14/2012 5:51:06 AM PDT by thackney (life is fragile, handle with prayer)
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To: All

Palin: Drill baby drill

Obama: ahhhhh....errrrr....ummmm...can’t we just use Solyndra?


10 posted on 04/14/2012 5:52:46 AM PDT by ak267
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To: Lonesome in Massachussets
A typical 2012 North Dakota Bakken well will produce for 29 years, producing an average of 580,000 barrels of oil.

Or the fear of unfavorable government intervention.

From one of the few bright spots in today's economy straight into the heart of darkness!

11 posted on 04/14/2012 5:55:42 AM PDT by DUMBGRUNT (The best is the enemy of the good!)
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To: Errant

If you think the cost of making the hole in the ground is the majority of the cost to bring oil to a selling point, you are quite naive. I’ve spent my career on what comes after the well. Far more dollars are spent on infrastructure, operation and maintenance than the drilling and completion.


12 posted on 04/14/2012 5:59:25 AM PDT by thackney (life is fragile, handle with prayer)
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To: thackney

It’s just a back of the napkin estimate to begin to examine what they were quoting. It wasn’t intended to be used to run the company, just what the oil costs to get it out of the ground. Certainly their $86 a barrel cost is pretty stupid for land production.


13 posted on 04/14/2012 6:08:18 AM PDT by Errant
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To: thackney; Errant
"That is the price to put the hole in the ground."

THANK YOU!!

14 posted on 04/14/2012 6:10:41 AM PDT by harpu ( "...it's better to be hated for who you are than loved for someone you're not!")
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To: Errant

I am sorry but you don’t begin to understand the industry if you think you captured even half the cost including your “overestimations”.


15 posted on 04/14/2012 6:13:42 AM PDT by thackney (life is fragile, handle with prayer)
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To: thackney
Is this the same thackney?

Posted on Thursday, January 12, 2012 2:19:03 PM by thackney

On average, it costs ConocoPhillips $15.48 to produce a barrel of oil in Alaska compared to $12.32 per barrel in Canada, $10.24 per barrel in the Lower 48 and $10.15 per barrel in the North Sea. The company’s production in the Middle East costs $6.98 per barrel, Kah said.

{Alaskan North} Slope producers lay out scenario with proposed oil changes ALASKA JOURNAL OF COMMERCE ^ | Jan 12, 2012 | TIM BRADNER

Like I commented, $86 dollars a barrel seems a tad high for Bakken oil.

From the article: The North Dakota Industrial Commission, Department of Mineral Resources, has released a new and higher average cost for drilling and completing Bakken wells in North Dakota.

16 posted on 04/14/2012 6:27:22 AM PDT by Errant
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To: Errant
That is the production cost after all those facilities get built, wells get drilled, etc.

You are not close to the real cost. Go read an 10-k or annual report. These companies make 6~9% typically. If it was the gold mine you suggest, all the folks with oil stocks in 401ks and mutual funds would be driving Rolls Royce.

The $86 isn't the total cost, it was the economic planning number including profit, etc.

The $55 dollar number is where you would see people deciding it wasn't worth it. And that includes assumptions of expected higher values at a latter date.

17 posted on 04/14/2012 6:34:50 AM PDT by thackney (life is fragile, handle with prayer)
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To: Errant

Read the next line of the article you quoted (which I posted)

“The figures for operating costs come out of ConocoPhillips’ financial reports and do not include taxes, capital investments or transportation costs.”

That is just what it cost to operate it after you build it. You also have to pay lots and lots of taxes (typically 3 times profit, higher in Alaska) and then pay to move the oil to market.

My guess would be to double your initial number to build all the top ground facilities, then add your quoted number on top. Then you approach cost to get oil at the beginning of the pipeline.


18 posted on 04/14/2012 6:39:17 AM PDT by thackney (life is fragile, handle with prayer)
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Click

19 posted on 04/14/2012 7:22:21 AM PDT by RedMDer (https://support.woundedwarriorproject.org/default.aspx?tsid=93)
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To: thackney
That is just what it cost to operate it after you build it. You also have to pay lots and lots of taxes (typically 3 times profit, higher in Alaska) and then pay to move the oil to market.

My guess would be to double your initial number to build all the top ground facilities, then add your quoted number on top. Then you approach cost to get oil at the beginning of the pipeline.

LOL!


20 posted on 04/14/2012 7:22:49 AM PDT by Errant
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To: thackney
Just saw this ad and I though of you! ;)

Invest in Alabama Oil Now!

•Estimated Return on Investment 3.5:1 (After-Tax Benefits)

Sounds too good to pass up!

In all seriousness though, as unthinkable as it seems, could we be seeing an actual "oil bubble" developing?

21 posted on 04/14/2012 7:43:54 AM PDT by Errant
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To: Errant
You can pretend those cost don't exist if you want. I know how to read a 10-K or Annual Report.

When oil prices are down, little is invested for new production, maintenance is cut to the bone. Sometimes they sell off stock to stay alive. When the price goes up, so does the spending. The oil industry has always been cyclical. Those who don't prepare for the coming bust usually have their assets bought up by the ones that did.

If you really believe they are magic money machines, you ought to buy their stock and retire early.

22 posted on 04/14/2012 7:48:56 AM PDT by thackney (life is fragile, handle with prayer)
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To: thackney

The numbers are not absolute but expressed as a percent of sales.

In an inflationary economy where the sales price of oil and energy is rising, the absolute earnings are increased thus making the stock a good deal in an inflationary economy.


23 posted on 04/14/2012 7:58:29 AM PDT by bert (K.E. N.P. +12 ..... Crucifixion is coming)
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To: bert
In an inflationary economy where the sales price of oil and energy is rising, the absolute earnings are increased thus making the stock a good deal in an inflationary economy.

Was there any other industry on that list to which that would not apply?

The numbers are not absolute but expressed as a percent of sales.

That also shows the expenses climbed in absolute dollars well. Very typical in the oil market. Price goes up; desire for the producers to produce more goes up; demand for rigs, steel, copper, labor goes up; cost for those goes up; expenses for the producers goes up.

I've been riding this roller coaster for a couple decades. It will cycle again, and again.

24 posted on 04/14/2012 8:05:20 AM PDT by thackney (life is fragile, handle with prayer)
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To: thackney
expenses for the producers goes up.

If y'all are losing money at $55 oil, that means that your costs have almost tripled in the last 10 years. Because the decade before that, y'all were selling oil at less than $30 a barrel and making a nice profit.

I'd almost bet those Saudi Sheiks are having to fly coach to Houston...

25 posted on 04/14/2012 8:21:45 AM PDT by Errant
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To: Errant
hat means that your costs have almost tripled in the last 10 years

Look at the drilling cost as an example. I believe the cost per well has more than tripled in 10 years.

Because the decade before that, y'all were selling oil at less than $30 a barrel and making a nice profit.

While less was invested, production declined until demand pushed it up. There is no question that we had access to cheaper, shallower, easier to produce fields back then. Horizontal drilling was uncommon, it didn't require more than a dozen stages of hydraulic fracturing to make an economical well.

So is it your claim the expenses in the 10-K and Annual reports are faked? Do you think their is a hidden pile of money growing under the mattresses?

26 posted on 04/14/2012 8:29:48 AM PDT by thackney (life is fragile, handle with prayer)
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To: Errant
Please consider the following charts:

Price of Oil plotted against Price of Gold

Does that help? In that twenty year time how much has the dollar fallen? How much has commodity prices climbed?

27 posted on 04/14/2012 8:36:54 AM PDT by thackney (life is fragile, handle with prayer)
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To: thackney
So is it your claim the expenses in the 10-K and Annual reports are faked?

Maybe they need to better breakout the salaries/bonuses/ROI of your presidents/vice-presidents/investors and other.

I know the workers haven't seen a tripling of their salaries in the last 10 years, knowing many personally. And as a land owner, on average, the leases haven't increased that much, and I did retire early! :)

28 posted on 04/14/2012 8:43:56 AM PDT by Errant
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To: Errant

I am sure those capital investment lines are used to hide salaries.

You should call the SEC, maybe you can get a finders fee.


29 posted on 04/14/2012 8:54:52 AM PDT by thackney (life is fragile, handle with prayer)
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To: thackney
Price of Oil plotted against Price of Gold

Yeah, I can start to a agree with you on that, if you include a market that isn't artificial/controlled by a few majors and OPEC.

I'm not sure if we'll ever see an actual free market with true competition and less regulation in our life times, but if we do, while there is going to be turmoil in the oil industry, it will be good for the economy.

In the mean time, those expensive technologies you complain about, are turning our dependence on foreign oil around and a single well can tap six square miles of oil bearing formation. Seems pretty cost affective to me!

30 posted on 04/14/2012 8:57:21 AM PDT by Errant
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To: thackney
You should call the SEC

Yeah, just like MF Global, GS, JP Morgan, ...

31 posted on 04/14/2012 9:01:28 AM PDT by Errant
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To: Errant
My work is electrical power in the oil/gas/petrochem world. When you talk of expenses not drastically climbing, it is hard not to claim disbelief.

In '05~'06 time frame, when we bought large order of big cable (miles at a time) we could only get price guarantee if we would pay for matching copper futures at the same time.

32 posted on 04/14/2012 9:08:54 AM PDT by thackney (life is fragile, handle with prayer)
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To: thackney

What do you do with that copper when you’re done with it?


33 posted on 04/14/2012 9:13:13 AM PDT by Errant
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To: Errant

We won’t be done with it until the fields shut down.

I know when we have to demolish existing equipment it is salvaged, not thrown in the dump.

But the scrap price of wiring covered with insulation, armor and jackets doesn’t come anywhere near the price of new cable. At least these days it is sent for recycle instead of trash where it can.


34 posted on 04/14/2012 9:17:55 AM PDT by thackney (life is fragile, handle with prayer)
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