The Dangerous Economics of Shale

#peakoil The Dangerous Economics of Shale Oil: For years, we’ve been warning here at tha...

What’s more, companies have already spent huge sums accumulating land, on which they’ve drilled a relatively smaller number of wells, so this “One-Well” shale company is definitely fictional. Take OAS, which has 468 wells in production (45k bbl/day = 98 bbl/well) and 779 square miles of land they’ve bought for $1.8 billion. That’s only 0.6 wells per square mile. However, they’ve already spent the money for the land, so from a “cash flow basis”, they don’t really count the land cost when answering the question: “do I want to drill a well here or not.” At this point, money to buy the land is gone, so from a corporate survival standpoint, all they ask is, “if I drop a well, will it pay me back in 3 years?” And in the current environment, they probably only look at year 1 when making this analysis.

Full article: http://peakoil.com/production/the-dangerous-economics-of-...