Vertical Oil Wells Are Still Worth The Investment

Oklahoma’s oil and gas operators haven’t completely abandoned drilling vertical, or “straight hole” wells, Corporation Commission records show.

It reported that 197 wells of the 1,003 completed in 2016 were straight hole wells.

Granted, that’s down from a recent high of 858 vertical wells permitted in 2011 and completed by June the following year, when that represented about 42 percent of the 2,082 that year.

But while an industry analyst and a driller are quick to agree that much of the media and general public focuses their attention now on horizontal drilling and production, they add that the tried and true process of drilling and producing vertical wells won’t become extinct anytime soon.

Russell Evans, an economics professor who directs the Steven C. Agee Economic Research & Policy Institute, regularly analyzes trends in the state’s oil and gas industry for trade groups and banking officials.

He said continued drilling and production of vertical wells is supported by three factors, based on information he’s encountered as part of his research.

The first, Evans said, is that he believes risks associated with vertical wells are diminishing in part through data collected as deeper, horizontal wells are drilled.

He said that often, mineral rights owners only sell rights to a resource being targeted by a horizontal well to the company seeking to exploit it. As part of that, they require the company to provide them detailed information on up-hole zones to improve their understanding on potential production from those.

Second, Evans said costs to drill vertical wells have been falling as drilling times have improved.

Third, he said data shows costs to lease mineral rights typically accessed by vertical wells are much less expensive than those for resources targeted by drillers in horizontal plays.

Those factors, he said, continue to make vertical wells attractive for some producers.

Other influences

Tom Gray, a principal of Raydon Exploration, said another reason vertical wells remain attractive is the potential return a producer can get from such projects.

Gray, whose firm is based in Oklahoma City but has most of its ongoing operations in the Oklahoma and Texas panhandles and southwest Kansas, noted the typical rate of return on a deep horizontal well usually is about $2 for every $1 it cost to drill and complete the project.

“In the conventional realm, we are going after traps of oil and gas, and we have a risk that’s higher,” Gray said. “But when we find those reservoirs, their quality is vastly better (than what horizontal shale wells produce).

“Because your return is better, it allows you to take some additional risk. To me, that’s the biggest difference.”

He also agreed that drilling and production costs are down outside of Oklahoma’s SCOOP and STACK plays, although he added that it sometimes can be more of a challenge to find talented drilling and completion firms in areas where activity hasn’t rebounded since 2014.

Gray agreed with Evans that oil and gas companies drilling vertical wells that target conventional reservoirs remain in Oklahoma’s future.

“The likelihood of finding a 10 (million) or 20 million barrel field in the conventional world is pretty small in Oklahoma because there has been so much drilling, historically,” Gray said.

“But there are lots of 500,000, 1 million, 2 million and 3 million barrel fields left to be found through vertical drilling,” he said.

“I think there will always be an appetite for that. And there is some pent-up capital willing and waiting to be deployed in the vertical realm.”

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