Sitting in the Cheap Seats

By | August 7, 2019

The state of the oil industry has always been chaotic, from the days of old to the present. Today the average person thinks of the oil business as being deep horizontal wells, long laterals and trucks galore frac’ing multiple stages and wells at the same time. The cost of these wells can exceed $10 million apiece.  At $50/bbl., the payout is thousands of barrels of oil and millions of cubic feet of gas. In glutted areas like the Permian, natural gas is basically given away or flared.

The damage being done to the reservoir as whole is enormous with flaring. It actually reduces the net oil to be recovered and as a consequence, makes these wells even less likely to prove profitable. But companies do it to maintain the cash flow necessary to avoid bankruptcy a little longer.  Over 170 shale companies have declared bankruptcy since 2015. The high cost of drilling makes one wonder if perhaps a more profitable way to find oil is to go back to the shallow wells and see what you can do on the cheap.

Thousands of wells were drilled in Northeast Oklahoma starting some 100 plus years ago. Some people are still drilling those shallow wells, many wells are less than 1,000’ in depth and can be drilled with a down hole hammer drill using air. These rigs are fast and efficient and can drill for as little as $20/ foot.  Do they find oil?  I checked a well drilled to 900’ in Craig County, Oklahoma and found it had an initial production of 5 barrels of 30° gravity oil per day. That doesn’t sound like much. But the total cost to drill and produce could be as little as $30,000, and assuming a well declines to 1 barrel per day after one year, that is about 365 days times 3 bbl. average. Say it makes 1,000 barrels in a year. That is $50,000 worth of oil. Throw in 20% for expenses and you still have made $10,000 net. And wells can be drilled 220′ apart often because these Mississippian formations are so heterogeneous that communication between wells is often marginal or non-existent.

One operator said instead of sitting a pump jack, they simply took an old swabbing unit from well to well every few days and pumped out the oil in the pipe. That is a sort of hands on way of doing it, but it was really cheap.

In Southeast Kansas, Anderson County to be exact, some wells were only 500’ deep, and the owner of the property drilled the wells himself, produced the wells using small pumps, and stored the oil on site. He made an average of about 500 barrels per month from 9 wells.

So – can’t make any money investing in a big company or well? Try the cheaper seats. The game is the same.