Oil in the mid-$30s may not be your friend, but you can make it work for you. You may have heard that sentiment before and wondered how true it really was for you and your business. Sure, the downturn isn’t as big of a deal for the big guys; they can weather it or Maybe if there were only a couple of guys on the payroll to worry about.At Drillinginfo, we have developed a workflow to show you how to thrive in any economic condition. It’s called Well Production Economics and it’s a tool within DI Analytics that streamlines the economic analysis and due diligence process. Estimating production, ROI, and payback period for a potential well used to take days; now it takes minutes to get into a position to succeed with prospects your competitors probably haven’t even considered. This workflow will help you to do more with less, work smarter not harder.
Let’s see how it works.
Predict Well Production
The first step in due diligence is to estimate the level of production we should expect from a specific prospect. In the Well Production Economics workflow, we do that by analyzing historical production from whichever operator, county, or play we are exploring and building custom decline curves.
The Graded Acreage tool in DI Analytics grades acreage quality down to the square mile. We can use this tool to select only wells that are from not only the same category (e.g., county, play), but also the same quality acreage. This will give us the most accurate estimate of future production.
Estimate Expected ROI
Of course, production is not the only factor impacting expected returns. Energy prices, well costs, royalty burdens, taxes, discount rates, etc. are all going to have an impact on profits. The next step in this workflow is to build a cash flow model with data specific to the individual situation. The model takes into account the inputs and predicted production and generates before- and after-tax IRR and payout period for the potential well.
Calculate Impact of Changing Variables
The outputs we just generated are a good estimate of profits if the inputted numbers for oil prices, well costs, etc don’t change. But, as we know, the oil and gas industry is nothing if not dynamic. What happens if energy prices vary? What if the cost of drilling and completing the new well are much higher or much lower than initially predicted? What would happen if the discount rate is different than expected? The Well Production Economics workflow also has a sensitivity analysis function. This charts the changes in ROI we could expect to see if economic inputs vary.
Compare Multiple Opportunities
You are most likely not considering just one opportunity. Maybe there are a few prospects in a given county and you are interested in which one is the better deal. The workflow allows you to run comparison analyses between multiple opportunities. Compare the expected ROI or the sensitivity analysis charts for a side-by-side view of where your investment is better spent.
The entire workflow we just described takes about 10 minutes to run. DI Analytics is pre-loaded with cleansed analytics-grade data, savings hours or days spent collecting, verifying, and cleaning data, loading it into an economic analysis tool, and analyzing it. With this level of accuracy and speed, you can act on opportunities before competitors are even aware of them.
While the competition is struggling with low prices, you could be thriving. With the right resources and tools, it’s quick and easy to identify the best opportunities and to be the first one in line to snatch them up.
What do you think? Leave a comment below.
Latest posts by Rachel Allen (see all)
- Alpine High: Promise on Track? - March 20, 2017
- Simplify the Search for Leases - October 25, 2016
- Estimated Ultimate Recovery (EUR) Done Fast, Done Right - May 5, 2016