Earlier today I learned about "zipper fracks" for the first time and perhaps helps explain why BEXP has had the success it has been having in the Bakken.
Now we may be seeing something new in the oil patch. Chesapeake mentioned it earlier: setting up their own in-house oil services support. This time it has to do with Oasis. From the Seeking Alpha.com transcript:
In June we formed a new company underneath Oasis Petroleum Inc., called Oasis Wells Services or OWS to provide pumping services to our operator wells. The crew is expected to begin operations in early 2012. The current operations team in our Williston office alone has over 100 combined years of experience in the frac business including experience with some of the larger providers as well as in pure start-up operations, most of that specifically in the Williston Basin.So, if I have that correctly, here are the data points:
So managing the hiring operations, consumables and logistics is nothing new to our team. The broader overall economics of this decision are quite compelling to us. In total completions make up anywhere from 45% to 60% of our well cost. Pressure pumping services alone comprise about 30% to 40% of our well cost. And there’s a relatively higher margin embedded in each job.
We’ll be able to capture that margin in the form of CapEx savings. So when we frac our own well, Oasis can save approximately $800,000 to $1 million per well gross, and that’s the way that you should think about modeling it. Additionally, we’ll earn a small profit margin on the services we provide to non-op partners, which would show up on our income statement and EBITDA in the neighborhood of about 300,000 per gross well-completed.
- Well completions account for half of the total cost of a Bakken horizontal well. Wow.
- Pressure pumping services alone account for a third of the cost of the well. Wow.
- So, Oasis says, why aren't we doing that ourselves?
- They did: they set up Oasis Wells Services?
- Why a separate company? Why not just part of "OAS"?
- Because other operators can contract with OWS; voila: another income stream.
- Clever.
So they're forming a company to support their own company?
ReplyDeleteYes.
ReplyDeleteAnd the really cool thing (besides saving a lot of money in the process) as noted above, they can hire out that company to provide pressure pumping services for others, and book that income.
By the way, Chesapeake is doing the same thing (perhaps more than anyone else, based on CEO's comments).
Oh, one more by the way: it is said that it takes 74 companies -- yes, that's not a typo -- 74 companies to bring a well to production: hire a company to do the title check; hire a landman to negotiate a deal; hire a lawyer; hire a CPA; hire a surveyor; hire a bulldozer to make the pad; hire a pipeline company to put in the pipeline; of course, the pipeline company has a whole subset of companies supporting it, and you can quickly see how it can take 74 companies to bring a well to production.
Don't you just love it?
Pioneer Natural Resources "PXD" has been running its own well service for years and this has added a lot of revenue to PXD's bottom line.
DeleteOasis could use their well service to provide services to other companies but I [bet] their crews [will] be busy with OAS wells.
Hey, thank you for taking time to post.
DeletePXD was mentioned in the article at this link a few weeks ago:
http://milliondollarway.blogspot.com/2012/03/another-basin-to-challenge-bakken.html