Operating an oilfield can be a lucrative and reliable source of income, but the costs of edging into the industry, establishing an oilfield, and turning it into a profitable investment can be downright staggering.
This is a high-competition industry defined by razor-thin profit margins. One speck of inefficiency or careless spending, and the profits can disappear entirely.
Whether you own and operate the entire oilfield or are an oilfield services company, when done right, an oilfield will deliver high profits for years.
Although documenting and analyzing all the costs to start an oilfield could take a thousand-page book, we’d like to give you a rough idea of the cost points, as well as the final expected price.
Before you can do anything else, you need to have available land to start an oilfield. Anyone who’s dealt with land purchasing is well aware of the varying price of an acre depending on the region, so you’ll have to look at the costs in your area. The size of land for sale will determine the costs, as well.
According to a 2014 article from the Midland Reporter-Telegram, the cost of purchasing an acre in rural Texas was about $2,354. But this is the average for land across the entire state and doesn’t represent 2017.
DrillingInfo.com puts a better-defined, and much larger, figure on the price of oil-rich land. They say that an acre ranged from $10,000 to as high as $58,000 an acre in the Permian Basin, a productive area of western Texas and southeast New Mexico. If you were purchasing just 50 acres to start an oilfield, you could expect to pay $500,000 up to a staggering $2.9 million.
According to a report from the Energy Information Administration, equipment costs make up an average of 24% of the costs for onshore oil and natural gas drilling and completion. The total numbers vary depending on the size and scope of the oilfield, but many projects had equipment costs in the 1.5 to 2 million-dollar range. This represents a large portion of the costs to start an oilfield and could create an insurmountable barrier for many start-ups in the oilfield industry.
You’ll also need people to help you get the oilfield up and running. You need engineers, construction experts, accountants, and more. This can also create millions of dollars in cost considerations to start an oilfield.
And hiring the best won’t come cheap. Here are a few of the oil-related jobs and their average salaries, as well as the average earnings of the top 10%, according to the Bureau of Labor Statistics:
• Average: $129,990
• Top 10%: $187,000
• Average: $89,700
• Top 10%: $187,200
• Average: $66,020
• Top 10%: $94,120
• Average: $36,510
• Top 10%: $57,240
Added all together, paying for these skilled individuals can create millions of dollars in initial costs.
So what is the final cost? Is there a hard price tag for creating an oilfield? A 2016 article from FuelFix placed the well cost for five different companies at $5.2 million to $7.2 million. Through 2017 and into 2018, they expected these costs to increase by about 5%. If you’re going to start an oilfield, be prepared for at least $6 million in starting costs, and possibly more.
In an industry where earning a profit can take years, having the assistance of a team like Scale Funding can make all the difference. If you are an oilfield services company, contact Scale Funding today to learn more about how oilfield factoring will give you cash flow you need to grow your business.
Scale Funding is an invoice factoring company serving businesses across the United States. For more information on factoring, call (800) 707-4845 for a free, no-obligation consultation and quote.