Upstream Costs in 2015 were 25% to 30% Below 2012 levels

Hydraulic fracturing has taken center stage in the U.S. as the preferred method of drilling with 77% of onshore rigs operating horizontally according to rig counts. As wells have gone through the learning curve of horizontal drilling, and lateral lengths of the wells have increased, the completion cost associated with the well have increased too. However, according to a new report by EIA, that trend is reversing.


Trends in profitability, operating costs and margins are reported quarterly by companies. As the commodity prices have turned downward since the OPEC decision in November 2014, oil and gas companies have followed suit and cut operating costs as well. However, well completion costs are less transparent. Several oil and gas companies disclose these numbers, but with little standardization.

It would be fair to assume that as costs have been cut in coordination with the price downturn, well costs would coincide. But the study from EIA points to an earlier downturn in well costs that would point more towards increased efficiencies and knowledge as opposed to restructured service contracts.

From EIA: “In an effort to increase understanding of the costs of upstream drilling and production activity, EIA commissioned IHS Global Inc. (IHS) to study these costs on a per-well basis in the Eagle Ford, Bakken, Marcellus, and Permian regions, analyzing the Permian’s Midland and Delaware basins separately. Upstream costs in 2015 were 25% to 30% below their 2012 levels, when per-well costs were at their highest point over the past decade. Changes in technology have affected drilling efficiency and completion, supporting higher productivity per well and lowering costs, while shifts towards deeper and longer lateral wells with more complex completions have tended to increase costs.”

Costs per well increased through the period from 2006 to 2012, which correlates to the rise in production growth, the ubiquity of wells, and the rapid growth of oil and gas activity in the U.S. The downturn in completion costs started in 2012, ahead of the commodity downturn.

Each area of oil and gas exploration has a different relationship to completion costs due to differing geology, well design, and completion timelines. The best method for drilling in one region may not be the best in another. Discovering the nuances of each area and determining the best methods and practices inevitably allows producers to improve design, speed up the process, and lower the costs of each well that is drilled and completed. The reduction in cost per depth and cost per lateral foot is a good example of this. Not only are well costs coming down, but the overall cost relative to depth and lateral length are also coming down.

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