American Oil and Gas Reporter - June 2015 - 75

SpecialReport: Artificial Lift Technology
to optimize them can make a noticeable
difference in well economics, especially
over the long term.
More importantly, operators need a
strong understanding of LOEs to evaluate
wells. In particular, they must recognize
that expenses change through the life of
the well and understand when and why
those changes occur to calculate a proposed
well's ROR and decide whether it is
worth drilling.
Endurance's LOE model breaks a
well's life into four stages. In the first
month, when the water from the completion and the flush production are flowing
in, total costs average $78,000 (Table 2).
In the second month, water disposal costs
and labor costs drop, but artificial lift
equipment has to be rented and installed,
bringing the average cost to $82,000.
From the third month to the 23rd
month, the typical well remains on gas
lift or ESPs. As the well's production
declines, equipment can be downsized,
reducing rental costs. The chemical costs
triple, but they remain small enough that
the average monthly LOE drops to
$19,600.
After two years, the well's initial artificial lift system is replaced by a rod
pump. As noted in Table 2, virtually
every cost goes down, reducing LOE to
$8,500.
These numbers come from Endurance's
experience and will vary widely across
basins and market conditions. Operators
should develop and periodically update
an LOE model that accurately reflects
the realities of their specific areas to determine how profitable a well will be.
In theory, price forecasts also should

play a part when deciding whether a
well's returns will be sufficient. I generally
recommend assuming a price below the
current price, even if the prevailing
wisdom suggests a higher price will materialize. This would be the prudent course
with any well, given oil and natural gas
prices' unpredictability, but it is especially
important with horizontal wells, which
yield the majority of their production
within the first year, when the present

price is most likely to be accurate.
Fortunately, by planning wells carefully
to maximize estimated ultimate recoveries,
minimize capital expenditures, and reduce
LOEs, it is possible to drill economic
wells in almost any price environment. It
takes work and the guts to try new technologies, but it can be done. Do it well
enough, and it is possible to thrive even
at lower commodity prices.
❒

DON RITTER is the chief executive
and co-founder of Endurance Resources LLC, an independent oil and
gas company with a 22,000-acre leasehold in the Delaware Basin. He spent
the first 20 years of his career at
Mobil, where he served in engineering
and management roles in the United
States and internationally, developing
expertise in drilling engineering, completion design, and project planning.
Before co-founding Endurance's predecessor in 2008, Ritter led engineering,
business development and sales for
GeoMechanics International, a technology firm focused on helping companies maximize success in horizontal
resources plays.
JUNE 2015 75

American Oil and Gas Reporter - June 2015

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