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Monday, July 15, 2013

What are developmental wells, and what makes them so attractive to investors?

Exploratory oil wells become productive in the developmental phase
Developmental wells are productive
By Sylvia Gardner

Developmental wells, within the petroleum industry are the big income generators that make the industry profitable. These wells are also sometimes known as "exploitation wells," although that term may have a negative connotation. The drilling of developmental wells also signals the maturation of an oilfield as it advances from the exploration stage to the production stage.

Definitions


By definition, the developmental wells are those drilled after natural gas or oil has been discovered in the area. Wells drilled in areas where the existence of oil or gas is theorized, but not proven are known as exploration wells. Depending on the contracts and mineral leases, a discovery well may be necessary to confirm an oil company's legal right to proceed with development of the oil field. This well is the first to strike oil in a given formation or oilfield.

Risks and benefits


Backers of discovery or exploratory wells face the greatest risks. Despite all the geologic research, the presence of oil is not proven until the first well is brought in. In some cases, a dry hole may result with no potential for any return on investment.

Backers of developmental wells face less financial risk. The presence of oil in the formation is known, along with other geological information learned from the exploratory wells. This information is valuable to geologists and can be used to estimate the depth necessary for any developmental wells. This information also is used to estimate the costs of a developmental well and can be used to forecast production.

Patterns of development


Developmental wells are often drilled in a pattern within the oil field. The pattern varies depending on drilling technique but is designed to recover the maximum amount of oil or natural gas from the field. The completion of developmental wells indicates the oil field is moving from the search for oil to the production of oil. This often means the addition of infrastructure, such as pipelines or storage tanks, which facilitates the transportation of the oil to shipping centers and ultimately to refineries.

For the oilman, the excitement comes when an exploratory well comes in, proving a new field actually does have oil or natural gas. The payday comes after the developmental wells are in place and the infrastructure is complete to move large quantities of oil or gas to market.

The bottom line


From an investment standpoint, the developmental well offers far less risk. The presence of oil or natural gas is a known quantity. The cost of the well can be better estimated based on the likely depth of the oil and the geological information developed during the exploratory process. Even the flow of the well, the anticipated amount of oil the well will produce each day, can be estimated.

That is not to say there is no risk in a developmental well. Even in the middle of a known oil field some wells will come up dry. The costs of the well can also exceed estimates for reasons as wide spread as weather or labor problems.

Data from the U.S. Energy Information Service estimates that about 10 percent of developmental wells come up dry. This compares to about one well in three for exploratory wells. Anyone considering investing in oil or natural gas producing wells should research the field thoroughly and understand the risks and rewards associated with the investment.


About the author: Sylvia Gardner is a freelance blogger. She recently found a wealth of information on developmental wells, and investing in oil and gas, after consulting with U.S. Emerald Energy.  

* Image license: Morguefile attribution and royalty free license

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