Zeits On Cost Control In The Bakken -- April 24, 2015

Richard Zeits over at Seeking Alpha on cost control:

The reporting season for U.S. E&P operators is about to shift into high gear next week. One of the most prominent themes this quarter will be record reductions in well costs achieved since the beginning of this year that management teams will showcase as the sector's key response to the change in the macro environment.

I expect that the average cost reduction already achieved and reflected in the leading-edge AFEs, for resource plays, will be in the 20%-25% range from the respective costs in 2014. Moreover, I expect operators to guide for additional well cost reductions of 5%-10% for the remainder of the year.

While the decline in well costs is the U.S. resource plays is of course nothing new, this earnings season will likely surprise with the magnitude of the reductions and the speed with which these reductions have been achieved. For many operators, well cost reductions will likely materially exceed guidance provided earlier this year.

For example:

Triangle Petroleum reported last week that it reduced its average gross well costs to $10.2 million on average in its fiscal Q1 2015 (three months ended January 31, 2015). This represented a ~14% year-on-year reduction. Triangle also reported that its most recent AFEs were coming in under $8 million and already exceeding the top end of the company's 10%-20% well cost reduction target for the current fiscal year.

It should be noted that Triangle's well cost remains on the high end among its peer group, but may be in part explained by Triangle's "integrated" business model whereby Triangle's wells are completed by RockPile, a sister company specializing in pressure pumping and completion logistics which is 100% owned by Triangle.

 The article will be archived at the source.