Energy News Beat
As we work on our day jobs of evaluating oil and gas wells and leases to determine whether they are a good investment or should be passed, I wanted to share some basic information as a backdrop to Texas oil and gas. I do not provide investment advice, but I am more than willing to share what I’m currently doing and how I got here.
Key Points
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Research suggests horizontal wells with fracking are more cost-effective than conventional vertical wells, but they require higher upfront investment.
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It seems likely that drilling costs for horizontal wells in Texas are around $8–$10 million, while vertical wells cost $3–$4 million, based on recent data.
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The evidence leans toward horizontal wells producing 300,000–1,000,000 barrels, compared to 50,000–200,000 barrels for vertical wells, impacting cost per barrel.
Drilling Costs
Horizontal wells with fracking typically cost $8–$10 million to drill and complete in Texas, reflecting their complexity and longer laterals (up to 20,000 feet). In contrast, conventional vertical wells, which are simpler and less common, cost around $3–$4 million, based on adjusted historical data and inflation.
Oil Output
Horizontal wells produce significantly more oil, with estimated ultimate recovery (EUR) ranging from 300,000 to 1,000,000 barrels, due to greater reservoir contact. Vertical wells, however, have lower output, with EURs of 50,000 to 200,000 barrels, reflecting limited reservoir access.
Cost vs. Output Analysis
When comparing cost per barrel, horizontal wells are more cost-effective, with drilling costs at $8–$33 per barrel versus $15–$80 for vertical wells, considering their higher output. This makes horizontal wells preferable in high-production areas like the Permian Basin, despite higher initial costs.
Survey Note: Analysis of Oil and Well Economic Data in Texas – Cost Comparison of Conventional Vertical Wells vs. Horizontal Wells with Fracking
This analysis examines the current economic landscape for oil and gas wells in Texas, focusing on the costs of drilling conventional vertical wells without fracking versus horizontal wells with hydraulic fracturing (fracking), and compares their oil outputs relative to costs. The data is drawn from recent industry reports, surveys, and economic trends up to May 30, 2025, providing a comprehensive overview for stakeholders in the energy sector.
Current Oil and Gas Economic Context in Texas
Texas continues to lead U.S. crude oil production, with the Permian Basin and Eagle Ford Shale being key contributors. In 2023, Texas production reached 5.519 million barrels per day (b/d), with the Permian Basin alone producing approximately 6 million b/d by early 2025, showing a month-over-month increase of 73,000 b/d between February and March 2025 . The West Texas Intermediate (WTI) oil price averaged $82.52 per barrel in Q1 2024, with projections stabilizing around $77–$81 per barrel by early 2025, based on industry forecasts.
Breakeven prices for new wells in the Permian Basin are around $62 per barrel, while existing wells can remain profitable at $31 per barrel, according to recent surveys . Drilling activity has not surged despite record production, with technological advancements allowing higher output from fewer wells. The U.S. rig count in September 2022 was 831, 12% below the 2019 average, and by 2025, the focus is on efficiency, with companies like Pioneer Natural Resources drilling longer laterals (up to 20,000 feet) and achieving lower breakeven costs (e.g., $19 per barrel for some wells) .
Economically, the oil and gas industry paid $26.3 billion in state and local taxes in FY 2023, a record high, reflecting its significant contribution . However, employment remains 11% below pre-pandemic levels, and rising costs for labor, steel, sand, and chemicals, along with supply-chain delays, have increased breakeven prices for new wells. Environmental challenges, such as fracking’s water usage (1.5–16 million gallons per well) and infrastructure costs (e.g., $40 million for road repairs in the Barnett Shale), add complexity .
Cost Comparison: Conventional Vertical Wells vs. Horizontal Wells with Fracking
Conventional Vertical Wells (No Fracking)
Historical data from 2014 (EIA) indicates that conventional vertical wells cost $1.1–$1.4 million per 1,000 feet of depth, translating to $8.25–$10.5 million for a typical 7,500-foot well . Adjusting for inflation at 2% per year from 2014 to 2025 (11 years, factor ≈ 1.268), these costs would be approximately $10.45–$13.35 million in 2025 dollars. However, due to reduced activity in conventional drilling and operational efficiencies, current costs are likely lower. Based on limited recent data and industry trends, we estimate the cost of drilling a conventional vertical well in Texas in 2025 to be around $3–$4 million.
Vertical wells have lower maintenance costs due to simpler operations, but their breakeven prices are higher, especially for low-yield “stripper wells” (producing a few barrels per day), which can require $40 per barrel or more to remain profitable Dallas Fed Energy Survey Q1 2025. Water usage is significantly lower, typically 0.5–1 million gallons, compared to fracked wells.
Horizontal Wells with Fracking
In 2014, horizontal wells in the Permian Basin cost $12–$15 million for a 10,000-foot vertical well with a 7,500-foot lateral . By 2024, Permian Resources reported drilling and completion costs per lateral foot at approximately $775, a 3% reduction from the previous quarter . For a 10,000-foot lateral (typical in 2025), this translates to $7.75 million. Adjusting for slight increases by 2025 (e.g., due to inflation or material costs), we estimate the cost of drilling and completing a horizontal well in Texas in 2025 to be around $8–$10 million.
Fracked wells have higher ongoing costs due to water disposal, equipment maintenance, and environmental compliance. Breakeven prices for new wells range from $46–$58 per barrel, with some high-cost wells reaching $90 per barrel, while existing wells can operate profitably at $30–$50 per barrel Dallas Fed Energy Survey Q1 2025. Water usage is significantly higher, at 1.5–16 million gallons per well.
Key Cost Differences
Horizontal wells with fracking are 50–100% more expensive than conventional vertical wells due to longer drilling times, more materials (e.g., drill stem, casing), and fracking operations (proppants, chemicals, and water). Estimated costs: $3–$4 million (vertical) vs. $8–$10 million (horizontal). Large operators benefit from multi-well pads and advanced completion designs, reducing per-well costs for horizontal wells, while vertical wells lack this scalability. Environmental costs, such as fracking’s high water usage, add external burdens not typically associated with vertical wells.
Oil Output: Conventional vs. Horizontal with Fracking
Conventional Vertical Wells
Vertical wells produce lower volumes due to limited reservoir contact. In Texas, many are “stripper wells,” yielding 15 barrels of oil equivalent per day (BOE/d) or less . Average initial production (IP) rates are estimated at 50–100 BOE/d, declining rapidly to 10–20 BOE/d within a few years. Estimated ultimate recovery (EUR) ranges from 50,000–200,000 barrels over their lifetime (20–30 years), depending on the reservoir .
Horizontal Wells with Fracking
Horizontal wells access larger reservoir areas, yielding higher initial production. In the Permian, new horizontal wells produce 100–3,200 BOE/d, with “sweet spot” wells averaging 500–1,000 BOE/d initially. Decline rates are steep (60–80% in the first year) but are offset by technology improvements like longer laterals (up to 20,000 feet). EURs range from 300,000–1,000,000 barrels, significantly higher than vertical wells .
Output Comparison
Horizontal wells produce 5–20 times more oil initially (500–1,000 BOE/d vs. 50–100 BOE/d) and yield 3–5 times more oil over their lifetime (300,000–1,000,000 barrels vs. 50,000–200,000 barrels). Both experience production declines, but horizontal wells require ongoing investment to maintain output due to faster initial declines.
Oil Output vs. Cost Analysis
To compare cost-effectiveness, we evaluate the cost per barrel of oil produced over the well’s lifetime, focusing on drilling and completion costs, with operating costs estimated at $15 per barrel for simplicity:
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Well Type
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Drilling Cost (2025, $M)
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EUR (Barrels)
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Cost per Barrel (Drilling Only, $)
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Total Cost per Barrel (Including Operating, $)
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Conventional Vertical
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3–4
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50,000–200,000
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15–80
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30–95
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Horizontal with Fracking
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8–10
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300,000–1,000,000
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8–33
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23–48
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Conventional Vertical Wells: At $3–$4 million drilling cost and 50,000–200,000 barrels EUR, the cost per barrel ranges from $15–$80. Adding $15 per barrel for operating costs, total cost per barrel is $30–$95. Breakeven prices are estimated at $40–$80 per barrel, higher for low-yield wells.
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Horizontal Wells with Fracking: At $8–$10 million drilling cost and 300,000–1,000,000 barrels EUR, the cost per barrel ranges from $8–$33. Adding $15 per barrel for operating costs, total cost per barrel is $23–$48. Breakeven prices range from $30–$65 per barrel, with some wells as low as $19 per barrel for efficient operators like Pioneer.
Key Insights
Horizontal wells are generally more cost-effective due to higher EURs ($23–$48 per barrel vs. $30–$95 for vertical wells). At current WTI prices ($77–$81 per barrel), both are profitable, but horizontal wells offer better returns, especially in high-production areas like the Permian. Large operators leveraging multi-well pads and advanced completion designs achieve lower breakeven costs, favoring horizontal wells, while smaller operators may struggle with fracking’s high costs.
Limitations and Considerations
Exact costs for 2025 are challenging to pinpoint due to variability by operator, region, and well specifics. Recent data on conventional wells is limited, as most Texas production focuses on shale plays. Environmental costs, such as fracking’s water usage, add external burdens not fully reflected in budgets. Market volatility, with oil prices potentially dropping to $50 per barrel, could make fracking unprofitable for new wells, while conventional wells may become unprofitable. Geological variability also affects production and costs, with Permian “sweet spots” yielding higher returns than marginal areas.
Conclusion
Horizontal wells with fracking dominate Texas oil production due to higher output (300,000–1,000,000 barrels vs. 50,000–200,000 barrels for vertical wells) and lower cost per barrel ($23–$48 vs. $30–$95). However, they require 50–100% higher upfront costs ($8–$10 million vs. $3–$4 million) and significantly more water (1.5–16 million gallons vs. 0.5–1 million gallons), posing environmental challenges. Conventional vertical wells are less common but viable for small operators in high-price environments. At current prices, horizontal wells offer better economic returns, especially for large operators.
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Key Citations
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