10 Keys to Profitable Oil Well Selection
Here is a top-10 summary of our well selection guidelines:
- Through dollar-cost-averaging spread your drilling budget over a diverse spectrum of well projects – never exceed a preset maximum per well allocation – no matter how promising a prospect appears to be.
- Try to include as many of the safer offset wells and infield drilling prospects in your portfolio as possible.
- Exploratory wells as a minimum should have multi-pay zone objectives, validated 3-D seismic interpretation and associated well control.
- Only participate in wells that will “probably” (as opposed to possibly) yield a blended annual tax-weighted return through payback of at least 30% and accumulate a reserves base of 3Xs ROI through the life of the portfolio.
- Plan on a 50% completion rate – continuously strive for 60% or better.
- The ideal crude oil to natural gas production ratio for the portfolio should be 1 bbl : 5mcf
- Anticipate up to 20% in drilling/completion cost overruns.
- Expect 15-20% annual production depletion on a balanced well portfolio.
- Understand that each well is a separate business unit subject to operating expenses and taxes and that any unprofitable well(s) must be quickly identified and divested.
- And last, but certainly not least, know your prospect generators and operators. Deal only with those that have proven track records and reputations for honest representation and efficient management.