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Drilling Down Into Bakken Well Costs

The Bakken is a notoriously tough area for producers to drill, which is why the play has some of the highest well completion costs in the U.S. Producers can spend $10 million or more to drill a single well, which in many cases has to be drilled to depths in excess of two miles. Companies must also deal with harsh winters and limited infrastructure which can add to the cost. Despite all of this, the Bakken is producing some incredible numbers.

Because it costs so much to drill a well, producers have been looking at every option to get those well costs down. Costs vary across the industry, with top producer Continental Resources' (NYSE: CLR  ) leading the way in becoming a low-cost operator. Last year it cost the company an average of $9.2 million to drill a well. As of this April, the company had those costs down to about $8.3 million. It's done so due to drilling and completion efficiencies as well as moving to multi-well pads. Continental is looking to shave its completed well costs to $8.2 million by the end of the year.

Continental is comfortably ahead of many of its peers in terms of keeping its well costs down. For example, when the company participated in a non-operated well, the cost last year was a staggering $11.3 million. Other producers such as Kodiak Oil & Gas (UNKNOWN: KOG.DL  ) pay about $10 million per well. The difference here is pretty staggering as Kodiak could drill 14 more wells this year if it had Continental's well costs. That would represent a near 20% increase in the number of wells the company could be drilling.

Kodiak has been working hard to get its well costs down, but it still has a long way to go. What's important for Kodiak investors to realize is that it's not an impossible task. For example, over the past year Newfield Exploration (NYSE: NFX  ) has been able to improve its well costs significantly. While its average well cost in the first quarter of this year was $9.8 million, more recent wells have been drilled for around $8.3 million.

Source: Newfield Exploration 

Another company that has done a much better job at keeping costs down over the past year is Oasis Petroleum (NYSE: OAS  ) . The company was spending about $10.5 million per well early last year; however, it has worked to get those costs down to about $8.4 million as of last quarter. That 23% reduction was made possible through a combination of lower service costs, efficiency gains, optimized designs, and pad drilling.

Oasis actually has some of the lowest costs when you consider the effect of its well services business. The company began investing to build its own well services business to further drive down costs which cut its well costs last quarter all the way down to $8.1 million. The company believes that including the impact of well services it can get its well costs down to $7.8 million by the end of the year. For perspective, by cutting its costs so significantly over early last year the company can drill 20% more wells for the same amount of capital.

The industry-wide improvements in well costs really improve the profitability of the Bakken. By getting these costs down producers can profit even if oil prices move lower, while profits will gush even higher if oil prices spike. The lowest-cost operators really have an advantage here, so as an investor you need to keep a close eye on well costs.

That's one area that Kodiak Oil & Gas investors need to pay particularly close attention. The company's costs are nearly 20% higher than some of its peers. If Kodiak can get its costs more in line with the industry it will vastly improve the company's profits. To learn what other areas to watch closely in order to determine whether Kodiak is currently a buy or a sell, you're invited to check out The Motley Fool's premium research report on the company, which comes with a full year of updates and analysis as key news breaks. To get started simply click here now.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 02, 2013, at 12:16 PM, prginww wrote:

    KOG management has indicated that it is aware that it is incurring high costs per well. One technique it is attempting is milti-well pads. What makes it difficult to reduce costs? While the difference between $8.3 and $10 million is significant, what accounts for the $1.7 million disparity, and how does KOG get there?

  • Report this Comment On October 28, 2013, at 8:39 PM, prginww wrote:

    That is great information. I have been learning a little about <a href="">well drilling in Hugo, MN</a>. I think it's good to know what is going on in your area and what you can do.

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9/28/2016 4:00 PM
CLR $48.13 Up +3.84 +8.67%
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