More on LTO Economics in the Bakken - Some Number Crunching

Here's an independent, serious analysis of U.S. Light Tight Oil economics in the Bakken.  Number crunching and financial modeling done by Rune Likvern.

This is not exactly casual reading, it is a fairly complex look at the economic numbers for fracking in the Bakken.

Also see the links in the article for earlier analysis, if you want to know more.

Here's the beginning of the article, to get you started:

More on LTO Economics in the Bakken

The goal for any commercial company is to make as high as possible profit and returns on invested (employed) capital, primarily the owners’ capital, equity.

Light Tight Oil (LTO) extraction from the Bakken and Three Forks formations in North Dakota had a new high of 1,17 Mbo/d in Apr-18 according to data published in Jun-18 by the North Dakota Industrial Commission (NDIC).

This article is an update of this (which has more details on specific costs to which there are small changes) and is a small expansion focused on profitability/financial metrics.

  • Scenarios were run there no wells were added as of Jan-19 (in the Bakken, Three Forks formations) with an initial flow above 1,2 Mbo/d to get estimates on NPV (DCF) and returns for the project and on equity (owners’ capital), ROE and ROI with a sustained oil price of $60/bo and what oil price would provide the project with a 7% return (ref table 1).
    All at the wellhead (WH).
    These runs had cut off end 2040.
    The objectives with such scenario analysis is to establish baselines from which it becomes possible to follow developments in several financial metrics, also adjusted for oil price movements.
    Applied to companies, it provides for benchmarking of companies’ management performances.
  • At $60/bo (and $2,50/Mcf for natural gas) the Bakken project would return about 4%.
  • A 7% return was obtained with a sustained oil price of $73/bo (and $3,00/Mcf).
    • The above estimates do not include costs for acreage, 800 Drilled UnCompleted (DUC) wells with an estimated total cost (employed capital) of $2,0B – $2,4B, any refracking (ref Marathon), flared gas and future costs for Plugging & Abandonment (P&A) for about 12 000 wells started as of Jan-09 to end 2018, estimated at a total cost of $1,8B – $2,4B and recognized write downs.
  • Including the items described above, the estimates show a full cycle return of 7% for the Bakken as one big LTO project would be achieved at a sustained future oil price at about $80/bo [$90/bo WTI].
  • One of the best and most reliable metrics for investors are NPV projections for Equity (Owners’ Capital).
    A NPV projection for equity that comes in at about 0 with a discount rate of 10% (the higher the better) is considered acceptable (reference also tables 1-5).
    This metric allows comparisions across sectors.

 

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Hello Tom and nice to see you again. Last time was at oilpro.
*shakes hands*

I will keep an eye on this thread and try to reply to comments related to my Bakken article etc.

Rune

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Hi Rune, great to run into you again, after the unfortunate demise of Oilpro.

Welcome to the Oil Price Community  : )

Looking forward to your comments here. Hope your latest article gets lots of eyeballs on it.  Your in-depth analysis and number crunching of LTO can be a different viewpoint than the typical MSM fluff.

Enno's Shale Profile and Mike's Oily Stuff make occasional appearances here as well.

For those who don't know you, please feel free to introduce yourself on the New Members thread:

 

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