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Wednesday, August 31, 2011

Study: Fracking Priciest for Wells

- Study: Fracking Priciest for Wells

Wednesday, August 31, 2011
Pittsburgh Post-Gazette
by Erich Schwartzel

The hydraulic fracturing process that's brought the most controversy to the natural gas industry is also the most expensive aspect of operating a Marcellus Shale well, according to a University of Pittsburgh study released Tuesday.

The fracturing, or "fracking," process that splinters shale rock and lets gas escape costs an average of $2.5 million -- nearly one-third of the total $7.6 million that it costs a company to operate a single well.

Land acquisition and leasing accounted for $2.1 million of the total well costs, with the average signing bonus for land calculated as $2,700 per acre.

This examination of the economic impact of a single Marcellus well was deliberately more narrow than other academic takes on the industry, which have accounted for indirect or induced costs brought on by cottage industries associated with drilling. The conductors of the study called the direct cost of a well a "critical information gap" in gas research.

The study, conducted by Pitt's Institute for Entrepreneurial Excellence and the Katz Graduate School of Business, worked with Downtown-based EQT Corp. to study an operational drill site in Washington County.

Costs were found to dramatically drop after the 23- to 35-day drilling phase, with the reclamation (or "completion") phase and pipeline (or "gathering") phase costing less than one-tenth of the overall price of the well.

The $7.6 million in direct costs that were found for the EQT well is higher than the industry standard of $4 million to $5 million.

EQT sites are considered more expensive on average because the company is not vertical integrated, which means its vertical and horizontal drilling processes occur separately.

The full breakdown included:
  • Acquisition and leasing: $2.1 million
  • Permitting: $10,000
  • Vertical drilling: $663,000
  • Horizontal drilling: $1.2 million
  • Fracturing: $2.5 million
  • Completion: $200,000
  • Production to gathering: $472,000

Copyright (c) 2011 the Pittsburgh Post-Gazette

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