You spent how much? - Expenditures per Well in the WCB: 1981 to 2007

Use "Net Cash Expenditures of the Petroleum Industy" for reference

When you look at information on the expenditures per well in the Canadian Western Basin, there is an interesting and alarming trend. Expenditures per well have increase while production per well and reserves per well have dramatically decreased.

The graph is a comparison of net expenditures to bring a well on line (excluding costs for gas plants) from 1981 to 2007. The x axis is marked from 1 to 27 for years; where 1 is 1981 and 27 is 2007). The y axis is the expenditure per 1000 meters cubed (m3) to bring reserves and production on line. All figures can be found on www.capp.ca - Canadian Association of Petroleum Producers.

Cost per 1000 M3 of Additional Reserves:

In 1981 the average spend to add reserves was $4157 per thousand cubic meters of oil and gas reserves.

In 2007, the average spend was $27,753 per thousand cubic meters of oil and gas for reserves.

Expenditures per well per 1000 M3 increased 568% from 1981 to 2007.

These figures are not prorated for inflation.

The average reserves per well has decreased from 1981 to 2007. For a gas well, it has decreased 93%. For an oil well, reserves per well has decreased 81%.

The last 10 year period, from 1997 to 2007, expenditures per well (excluding expenditures on gas plants) have increased 109%, while production has only increased 13%. The largest and fastest growing expenditure is the drilling component on the development side. It grew 147% over the 10 year period for all wells drilled. The average new developmental well drilled during that period grew 131% from an average cost of $356K/well in 1997 to $822K/well in 2007.

Expenditures:

There are three areas that have costs associated with them; exploration, development and operating. On the exploration side, the costs are; geological and geophysical, drilling and land. Developmental include; drilling, Field equipment, enhanced recovery and gas plants. Operating includes; well and flow lines and gas plants. Royalties are just that, royalties. From 1997 to 2007 the total expenditure breakdown is as follows:

Type Costs 10 Year Increase Percent Increase

Exploration: $75.3B $2.5B 47%

Development: $184.3B $12.1B 104%

Operating: $106.3B $7.9B 122%

Royalties: $107.7B $7.8B 172%

Total: $473.6B $30.4B 109%

Expenditures as a total and also on a well basis have significantly outpaced inflation.

Conclusion:

So reserves have decreased per well and expenditures have increased per well (expenditures increased by 568% - from $4,157/1000 M3 in 1981, to $27,753/1000M3 in 2007).

At this pace, expenditures will get to a point where it is no longer viable to explore and develop conventional oil and gas.

These opinions are mine and may not reflect your view. If you would like to contact me, then please feel free to do so at info@argentis-group.com.