Report: Drilling Costs in Texas Fall Nearly 30 Percent

Thursday, March 31, 2016

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The cost to drill an oil or natural gas well has fallen by as much as 30 percent since 2012, according to a new report by the U.S. Energy Information Administration (EIA) and research firm IHS Global. The report analyzed the costs associated with drilling and production in four shale fields across four states, as well as offshore development in the Gulf of Mexico. 

Key findings from the report:

  • Onshore drilling and completion costs are 25 to 30 percent less than their peak in 2012.
  • The cost of drilling wells in the Permian Basin (West Texas) and Eagle Ford (South Texas) decreased between $500,000 and $1.4 million per well.
  • Improvements in well design, efficiency and other technological advances will further reduce costs by 7 to 21 percent through 2018
  • In the Permian, reduced transportation costs from increased pipeline capacity could save around $8 per barrel. The Permian currently produces about 2 million barrels every day.

Two of the shale regions examined were in Texas: the Eagle Ford in South Texas and two plays in the Permian, the Delaware and Midland basins. Overall, the average cost of drilling and producing from these regions dropped between $500,000 and $1.4 million per well, with the average drilling and completion cost for the five onshore regions between 25 and 30 percent below their 2012 level. 

When determining the change in cost for these wells, researchers examined a myriad of factors that contribute to the total cost, including land acquisition, capital costs, lease operating expenses, processing, and transportation. As the researchers point out, much of this cost savings is thanks to improvements in well design and efficiency. According to the report,

 “The onshore oil and natural gas industry continue to evolve, developing best practices and improving well designs. This evolution resulted in reduced drilling and completion times, lower total well costs and increased well performance.” (p. 4)

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The researchers add:

 “Drilling technology improvements include longer laterals, improved geo-steering, increased drilling rates, minimal casing and liner, multi-pad drilling, and improved efficiency in surface operations.” (p. 4)

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In the Permian specifically, transportation costs are anticipated to drop significantly, as low gas prices and improved infrastructure allow resources to be transported more cost effectively.

“There is substantial variability in operating expense with water disposal, long haul transport and artificial lift expenditures being the highest cost items. Given this variability, we expect some operators to make substantial improvements.” (p. 97)

With improvements in transportation, producers in the Permian could realize significant savings,

“The difference between long haul transport [such as rail] and pipeline transport could save an additional $8 per barrel and may make a large improvement to well economics going forward.” (p. 97)

As these efficiencies continue, costs are projected to decline through 2018. According to the report,

“The IHS report also expects additional efficiencies in drilling rates, lateral lengths, proppant use, multi-well pads, and a number of stages that will further drive down cost measured in terms of dollars per barrel of oil-equivalent ($/boe) by 7% to 22% over this period.” (p. 1)

Providing good paying jobs, helping fund schools and universities, and making the U.S. more energy secure, oil and natural gas are vital to the Texas economy. As this latest EIA report shows, improvements in drilling efficiency and technology are helping to ensure Texas oil and natural gas production, and therefore the Texas economy, continue to thrive. 

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