Break Even Costs? Where Does One Even Start? -- December 18, 2018

Disclaimer: there may be some hyperbole in this post, but I think it's pretty accurate. I am inappropriately exuberant about the Bakken. 

The well:

• 17498, 498, MRO, Chimney Butte 34-11H, API: 33-025-00804, Bailey, t11/08; cum 344K 10/18;

So, this well was drilled back in 2008, at the beginning of the Bakken. At that time, it may or may not have been a good well. It may have paid for itself; it may have been a financial disaster. Who knows? But 2008? That's ancient history for the Bakken. Those costs have long been "booked." But the well did what it was intended to do:

• provide the company with knowledge about the geology of the drilling unit; and,
• hold the lease by production (and the well held the lease for ten years) until the company was ready to drill in the area again

Production after the initial frack:

BAKKEN	7-2009	29	2463	2490	685	1136	1136	0
BAKKEN	6-2009	30	2792	2758	760	1521	1521	0
BAKKEN	5-2009	31	3493	3571	770	1838	1838	0
BAKKEN	4-2009	30	3491	3605	738	2143	2143	0
BAKKEN	3-2009	31	3575	3420	600	2142	2142	0
BAKKEN	2-2009	28	3400	3399	553	1714	1714	0
BAKKEN	1-2009	30	4915	4829	862	2635	2635	0
BAKKEN	12-2008	26	3431	3808	200	1156	1156	0
BAKKEN	11-2008	28	7753	7263	2327	4010	822	3188
BAKKEN	10-2008	22	2846	2703	135	1468	0	1468

Then in late 2017/early 2018, MRO went back into the area and drilled a few more wells. See graphic at this post.

And then look what this well did when MRO went back into drill some more wells in that area.

Pool	Date	Days	BBLS Oil	Runs	BBLS Water	MCF Prod	MCF Sold	Vent/Flare
BAKKEN	10-2018	31	22300	22476	16006	23094	21357	130
BAKKEN	9-2018	30	30240	30365	45535	22432	18788	1531
BAKKEN	8-2018	31	35012	35191	30227	22880	9632	10784
BAKKEN	7-2018	28	32033	32078	35087	20329	5166	12950
BAKKEN	6-2018	28	40585	39571	79992	39267	6	36507
BAKKEN	5-2018	0	0	0	0	0	0	0
BAKKEN	4-2018	0	0	0	0	0	0	0
BAKKEN	3-2018	0	0	0	0	0	0	0
BAKKEN	2-2018	0	0	0	0	0	0	0
BAKKEN	1-2018	0	0	0	0	0	0	0
BAKKEN	12-2017	0	0	0	0	0	0	0
BAKKEN	11-2017	0	0	0	0	0	0	0
BAKKEN	10-2017	0	0	32	0	0	0	0
BAKKEN	9-2017	29	675	690	356	638	0	397
BAKKEN	8-2017	31	828	914	335	722	0	45

This well was a stripper well by 2017, producing less than 1,000 bbls/month. But then in 2018, production jumped to 41,000 bbls/month.

The company did not have to pay exorbitant costs for a new lease; did not have to prepare a new pad; did not have to build a new 10-mile road out out to the pad; did not have to re-negotiate new leases with a gazillion mineral rights owners; did not have to run a new electricity line out to the site; did not have to bring out a new fractionator; and, it's possible frack water/produced water/crude oil pipelines were already in the area.

For the cost of a re-frack, MRO got a huge well. The original frack was an open-hole frack with less than 500,000 pounds of sand. Most of the cost of this well back in 2008 was the cost of drilling, not much cost in fracking it. Now in 2018, no costs of drilling, but simply fracking. That's not quite true.

MRO put a rig back on this site. In 2008, setbacks were 500 feet. Now, under new rules, the horizontal could be extended. MRO redrilled part of the lateral, drilling a sidetrack, straightening out the heel portion of the well, and extending the original length. Pretty cool, huh?

The frack data is not posted by NDIC yet but according to FracFocus, this was a small/medium frack: 5.7 million gallons; 89.4% water.

Frack sand is plentiful; has come down in cost. This was a small/medium re-frack. This well will go on to produce for 35 years. It will undergo multiple re-works; small re-fracks; major re-fracks; probably see more target zones drilled; and, benefit from neighboring fracks.

How does one even begin to calculate the break even costs of Bakken wells? The experts still use the same methods that were used by folks calculating break-even costs in conventional drilling.

By the way, how does one even "appraise" these Bakken wells? This is absolutely fascinating. When a grandfather has a trust, and the trust "goes" to his six grandchildren, for tax purposes, etc., the wells must be appraised at some point. How do they even begin to appraise these wells? I have no idea.

Full production profile for this well can be found here.