Back of the envelope energy calculations

I don't know the energy sector very well, but I come across interesting cost numbers every now and again.

I saw an article today that talked about the avg. Eagle Ford/Bakken shale/oil well producing about 400 barrels a day with decline rates of 50% per year. The article estimated the all-in cost of extraction/production was as high as $75/bbl.

I have heard the cost to drill a well varies between $5m-$10m (up from $1m to $3m less than 5 years ago).

Assuming the price of oil is $100/bbl and those estimates are about right, the economics are approximately:

Year 1: $100-$75 = $25/bbl margin x 400 x 365 = $3.65m profit
Year 2: $25/bbl x 200 x 365 = $1.825m profit
Year 3: $25/bbl x 100 x 365 = $912k
Year 4: $25/bbl x 50 x 365 = $456k
Year 5: $25/bbl x 25 x 365 = $228k
Total Profit Over 5 Years = $7.07m
Discounted at 12%
PV = $4.01m

Interesting.

P.S. From a USA Today article 11/4/13 "Tight oil development is still at an early stage, and the outlook is highly uncertain," says the Department of Energy's EIA in its Annual Energy Outlook 2013, adding its future will depend on how individual wells perform as well as their costs and the revenue they generate.

The reason: "sweet spots" — small areas with the highest yields. Hughes says these spots simply don't last long. Unless more wells are drilled, the Bakken shale of North Dakota and Montana loses 44% of its production after a year and the Eagle Ford shale of Texas, 34%. Most of the nation's major shale regions produce both oil and gas.