With falling revenue from lower oil prices, operating costs have become a more significant part of the return equation. Costs that may be inconsequential at $100 oil can suddenly become material at $30 oil.
Unfortunately, operating costs for specific assets may be hard for investors to determine using data typically made available to the public through financial and other filings.
It's possible to fill the void through careful analysis of the operating data to discern differences in cost from one part of a play to another. For example, the DISCERN Energy platform revealed that Niobrara wells drilled in Weld County, Colorado by Whiting appeared to produce significantly more water than nearby wells drilled by Noble and Carrizo (Figure 2). As hydrocarbon production for these wells are fairly comparable (Figure 1), water production could be a differentiating factor for returns in the area. Whiting's wells produce about 1 bbl per boe of oil and gas over the first 90 days of production, approximately 10x the water production for the two other operators shown here.
Water disposal costs can range from $0.50 per barrel to over $1 per bbl, or may require capital investment in disposal wells. However an operator chooses to deal with disposal, water could play a material role in the overall returns at these oil prices. Fortunately, visualizations like this one make significant water accumulation easy to spot.
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Figures 1 & 2: While oil and gas production (90-day cumulative) for these three operators in the Weld County Niobrara (left figure) are comparable, WLL's wells produce 10x the volume of water (right figure).