Williston Basin well costs should peak this year at roughly $10 million per well on average as field operators fix and better manage a multitude of “bottlenecks,” or system inefficiencies that have slowed the production process, causing expenses to mount over past few years on the heels of the Bakken oil boom.
“The efficiencies right now relate more to the timing of a well producing – from the time it is spud or drilled to when the well comes into production,” said Marty Beskow, executive vice president of Voyager Oil & Gas, Inc., a Billings, Montana-based E&P independent.
Bottlenecks include shortage of crews, equipment, supplies, infrastructure and housing for the workers.
“There seems to always be a bottleneck at any point of time,” Beskow said. “And it’s even different for different operators and different areas. But they are all manageable problems.”
Before joining Voyager in early April, Beskow was a senior equity analyst at Northland Securities, operating as Northland Capital Markets, covering oil exploration and production companies, many with operations focused on the Williston Basin.
Well costs about $10 million
It costs about $10 million to drill a well in the Williston Basin, compared to $5 million per well just a few years ago, Beskow said, adding that actual costs vary depending on well location and degree of bottlenecks.
However, in addition to the inefficiencies, he added, well costs have increased because operators are drilling more and longer horizontal wells. More hydraulic fracturing stages are involved; and sand, ceramic or other granular material (proppants) pumped with water and chemicals under high pressure into the fractured rock to keep the channels in the rock open and draining oil also are more expensive.
“A lot of things have been done to improve the completion techniques that have added to that cost,” Beskow said. “But I would say that $10 million (per well) is pretty close to the peak. The expenses are probably not going to increase much more than that. Again, it is different for each operator in different areas, but I think we are reaching that plateau here in 2012. I think we are very close to the peak.”
Beskow said he expects well costs eventually to decline 10 percent to 20 percent, “assuming we can get our arms around those bottlenecks. The costs should start working themselves down with having adequately trained employees and having the equipment available.”
Bakken challenges endless
For MDU Resources Group and its president and chief executive officer, Terry D. Hildestad, challenges posed by the Bakken have been endless. That’s because as a large, diversified company, North Dakota-based MDU participates in virtually every aspect of the Bakken boom: utilities, exploration and production, and construction.
“We’re in the utility business and it’s a challenge with the hookups and can you get them done fast enough. And the E&P business — can you get enough crews in there to complete the wells? And then there are our construction people. We can get the work, but you need to house your people. So I would have to say that … the infrastructure needed to support all of this development is a big issue,” Hildestad said.
He agrees with Voyager’s Beskow that companies are getting a better grip on bottlenecks that have slowed the production process in the Bakken.
Hildestad said: “It used to be that fracking was the challenge. But I think the fracking is getting caught up. Then it was the workover rigs. I think they are getting caught up on the workover rigs. But now, of course, it is the housing. We were blessed to have a very mild winter, and people got to stay in their campers. But here you can get some famous North Dakota winters. So it’s a combination. The basic infrastructure is working to get caught up. I drive around Minot here. They are building apartments all over. But if you get a good rain you are going to park in the mud.”
