San Antonio-based private E&P company RLU Oil & Gas Inc. drilled two shallow oil wells in Medina County, South Texas, in November and plans about the same number each month ongoing. That’s down from six or so per month prior to the turn in oil prices, but at $140,000 per well, costs are half of what other regional operators are achieving today. That’s because RLU has been diligent—and creative—in cutting costs, primarily by running its own drilling and service operations.
When most public and private equity-backed companies changed course to chase unconventionally drilled and completed shale plays, the majority of bread-and-butter private operators like RLU stayed the course: drilling low-cost, conservative conventional plays in the Lower 48.
“By doing our own service work, we can knock 40 cents off the dollar [rather] than having it hired out,” said Will Carter, president and owner of RLU. “It gives us a lot of control. We can still be economic at $30 oil; we can still be in the black.”
RLU concentrates on vertically drilled targets above 2,000 feet in Medina and Bexar counties, currently concentrating on the Anacacho Lime at 1,400 feet at its deepest. These wells pay out in 19 months, garnering a 2-to-1 return in the current climate.
“At $90 oil, payouts were off the chart,” said Carter, “but these are 50-year wells, they are long-life wells. You can’t lose sight of that. You can’t just think six months out.”
Will Carter, president and owner, RLU Oil & Gas
“Everybody’s gone to shale, and totally ignored these opportunities,” said Ed Hirs, a managing partner for Hillhouse Resources LLC, a start-up focused on the Texas Gulf Coast. “When the RRC data show a 76% hit rate on 362 Frio wells drilled post-3-D seismic, all you need is for one of these to pay for about eight shale wells.
“Things that work at $20 per barrel and $1 per Mcf, that’s where we want to be. That’s the economics at work down here.”
The story is the same in conventional basins across the U.S. Free from the high costs and fast declines of shale wells, these low-cost, long-lived conventional wells are garnering new favor in a weaker commodity price environment. Here are a few of their stories.