EIA: Costs of US oil, gas wells have declined since 2012

Average well drilling and completion costs in five key onshore areas in the US evaluated in 2015 were between 25% and 30% below their level in 2012, when costs per well were at their highest point over the past decade, according to the US Energy Information Agency’s recent study, Trends in US Oil & Natural Gas Upstream Costs.

“The profitability of oil and natural gas development activity depends on both the prices realized by producers and the cost and productivity of newly developed wells. Overall trends in well development costs are generally less transparent than price and productivity trends, which are readily observable in the markets or through analyses of well productivity trends such as EIA's monthly Drilling Productivity Report,” EIA said.

In an effort to increase understanding of the costs of drilling and production, EIA commissioned IHS Global Inc. to study these costs on a per-well basis in the Eagle Ford, Bakken, Marcellus, and two plays (Midland and Delaware) within the Permian basin, as well as the offshore federal Gulf of Mexico. The period studied runs from 2006 through 2015, with forecast to 2018.

According to the report, 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.

Rapid growth in drilling increased cost per well from 2006 to 2012. Since 2012, however, costs per well have decreased because of reduced overall drilling and improved drilling efficiency and tools.

Changes in costs and well parameters, such as the need to drill deeper or longer lateral wells, have affected the onshore oil plays differently in 2015, with recent per-well costs ranging from 7% to 22% below 2014 levels, according to the study.

Costs for each onshore oil play area differ due to variations in geology, well depth, and water disposal options. Overall, the adoption of best practices and the improvement of well designs have reduced drilling and completion times, decreased total well costs, and increased well performance.

“Greater standardization of these drilling and completion practices and designs across the industry should continue to lower costs. The drilling cost per foot, based on total depth, and the completion cost per foot, based on lateral length, are both projected to maintain these lower cost trends through 2018. Sustained lower upstream costs may affect near-term oil and natural gas markets, and ultimately, the prices of these fuels,” EIA said.