One Man's Junk Is Another Man's Treasure
This well had its 50th birthday four years ago when I first wrote this post.
I don't own this well anymore; I sold all my stuff on a multiple of 30 months and financed it at less than 5% to my 33 year old production superintendent of the past ten years. I hit my lick, he deserves to hit his.
He bought this well from me, and a bunch more, and he and his family are on the way to being financially healthy without ever having lied, exaggerated the truth, filed bankruptcy or without becoming dependent on other people's money to make a go of it. He will truly be an independent oil and gas operator. He will be an American success story. Because he worked for it.
Recently I had an unpleasant exchange with an internet oil expert on Twitter, a financial type, that I am certain would not know which end of a workover rig to walk to. He suggested my era, my 55 years in the oil and gas business working from a checkbook, was a "pathetic" time in American oil history. He also said....“shale” as a whole, when developed appropriately, is a cheaper and more scalable resource than the conventional resources."
NPV, and the internet, has made a lot of people really stupid about oil and gas.
I operated hundreds of wells like this one below over my career, many with much higher ROIs than this one. I can show you the way to tens of thousands of shallow, conventional wells exactly like this one below, all over America... from California, to the Mid-Continent, to the Illinois Basin and back to Texas, Louisiana and Oklahoma. These are the kind of wells that fueled America for the past 125 years. This is the stuff that made America the greatest industrialized nation in the world, not 6% IRR tight oil stuff that declines 85% the first 32 months of production life.
~Mike
This little well is 50 years old this month. So, in honor of her birthday she got a bath and a complete make-over recently. She is located in a 40 acre pooled unit that has three mineral owners in it, including the local school district and a very rural, Baptist church whose congregation spans four generations. The well and tank battery are actually located behind the church.
In 50 years this well has made 70,000 BO and last month, July 2019, it's total return on original investment was 31:1. Around my shop we don't bother with NPV, IRR, EBITDA or other hooey; we like to keep is straight and simple...31:1 ROI means its paid back drilling and completion costs 31 times. Thanks to some awesome water drive it stopped declining 20 years ago. It's got an amazing looking plug back in it up-hole which I am saving for my old age. It's not sexy, its less than 2,000 feet deep; folks don't Tweet about it, or cluck about it on Seeking Alpha and Rystad would not know how to analyze this well if it had to.
I finished building the firewall around the tank battery yesterday, re-stretched the fence around it and put new signs up; so now she is all spruced up again and has her 'Sunday-go-to-church-clothes-on.' It was 104 degrees when I left the location and did not get back to the office until almost five. Everybody had gone home already. The price of oil had fallen a dollar a barrel thru the day, the stock market had cratered, the IEA was yacking about how much more Permian Basin unconventional production was going to grow in the next 3 years, some dude with frizzy hair is going to get an Oscar for a stupid Nike commercial and Trump announced another bail-out for farmers who have been hit hard by his trade war with China. Good grief.
So, I went home, had a few cold beers, Ms. Catherine helped dig the dirt out of my ears; I showered and was asleep by 8:30. I slept like a baby. No bank owns me and I don't have to lie to anybody about how good all my wells are. I don't work in Saudi America, I work 24/7 in the Texas oilfield, rain or shine, and make money the old fashion way.
9.24 2023:
3 BOPD making $50,000 a year net profit at $86, after all expenses and royalty deductions. still making a 70% annual rate of return on initial investment after almost 55 years. Its annual decline is <1.4% and its total ROI now is upwards of 34:1.