shale wells typically see production deplete by 70 to 90 percent in the first three years, while fields see output drop off by about 20 to 40 percent per year without new drilling.
It’s hard to see how the oil companies make much profit with that high decline.
Let’s say the well produces 500 barrels per day or 15,000 barrels per month at $60 per barrel equals $900,000 per month (less 25% deduction for royalties, taxes, expenses, etc.) for a net of $675,000 per month or $8,100,000 per year minus depletion at 70% over 3 years equals or 24% per year equals $6,156,000 income first year and $4,202,000 the second year and $2,430,000 the 3rd year or $12,788,000 over 3 years.
At $10 million per well, they don’t turn a profit until the 3rd year.
Drilling and completions continue to progress with reduced drilling time and lower total well costs that averaged $10 million per well during the second quarter.
They should make $2,430,000 the 3rd year and less thereafter but that is about 7-8% return on the $10,000,000 initial investment.
And since 98% of the wells produce less than 400 barrels per day, it takes even longer for 98% of the wells to make the $10 million well cost back and turn a profit.
That’s why the oil companies are working hard to reduce that decline rate and I’ll bet they’re going to have some big improvements pretty soon!
Edit: And they are working hard to reduce the cost of drilling too!