Oil Well Costs: What Investors Actually Pay For

Reading an AFE

The Authorization for Expenditure (AFE) is your cost blueprint. Every legitimate operator provides one before you invest a dollar. It breaks down drilling costs, completion costs, facilities costs, and a contingency line item — usually 10-15%.

A typical vertical well AFE in Oklahoma's Mid-Continent runs $300,000-$800,000. A horizontal well with multi-stage fracturing costs $3-8 million. Your share is proportional to your working interest.

The IDC/TDC Split

Every cost on the AFE falls into one of two categories. Intangible Drilling Costs (IDCs) are expenses with no salvage value — labor, mud, chemicals, fuel, cementing, site prep. These are 100% deductible in year one under IRC Section 263(c). Tangible Drilling Costs (TDCs) cover physical equipment — casing, tubing, wellheads, tanks, pumping units. These are depreciated over 5-7 years via MACRS.

The IDC/TDC split typically runs 65-80% IDC and 20-35% TDC. This split determines your first-year tax deduction, so it's one of the most important numbers on the AFE.

Cost Ranges by Well Type

Vertical wells in the Mid-Continent: $300,000-$800,000 total. Lower cost means you can invest in multiple wells for diversification. Horizontal wells: $3-8 million. Higher IP rates and more production, but more capital at risk per well. Recompletions and workovers: $50,000-$300,000. These target additional pay zones in existing wellbores — lower risk, lower cost, but also lower return potential.

Lease Operating Expenses

Once the well is producing, you pay your share of monthly operating costs. LOE includes pumping electricity, chemical treatment, well maintenance, water disposal, gathering and transportation fees, compression, and minor repairs. Typical LOE for a conventional Oklahoma well runs $5-$15 per barrel of oil equivalent.

LOE matters for long-term economics. A well producing 10 barrels per day at $70 oil with $10/BOE LOE generates about $600/day in gross revenue and $500/day after operating costs. As production declines and LOE stays relatively fixed, the margin shrinks — eventually the well hits its economic limit.

Workover Costs

Workovers are periodic interventions to maintain or restore production. Common workovers include rod and tubing pulls, pump replacements, zone isolation, and re-stimulation. Costs range from $20,000 for a simple pump change to $200,000+ for a major restimulation. These are operating expenses deductible in the year incurred.