Interesting proposition for those that can afford to do it. EOG can and put up a slide showing the increase in return over time with reduction in service costs and assumed recovery in oil price.
Given 60% or more of the cost of D&C a well is in the Completion and for round numbers $10M well cost then $6M is the "C" part. So for the first part, a 20% reduction in costs saves $1.2M. The second part is assume POO recovers say 20% (from $50 to $60).
The math goes roughly using the NPV10 discount for the time value of money - about 4.5% every 6 months - so deferring the $6M Completion cost needs to save $600K (assuming a WACC of 10% which EOG would be below I would think) and then more complicated would be the greater return on the barrels produced at a $60 versus $50 over the that 6 month deferral...
Long term gain for short term pain (in boepd production growth not happening).
SSN Price at posting:
1.3¢ Sentiment: None Disclosure: Not Held
