More Skepticism of Initial Production as a Metric

I mentioned earlier my discovery that Bakken IP rates do not tell very much about daily production rates even four months later. The correlation is actually high (higher IP does mean higher production), but the slope of the IP vs production curve is very small, meaning that the higher IP doesn't translate into economically meaningful higher production.

Now I see that other people have come to the same conclusion, for example:

"When determining the well's ultimate recovery, what happens after the IP is more important than the IP itself. The initial decline rate of the well and the hyperbolic exponent (the rate at which the decline rate lessens) give character to the production curve and ultimately determine the well's reserves.

When I read a press release which includes IPs it's usually with a great deal of skepticism. The only thing you can tell for sure from an IP test is that the well isn't dry. Only after several wells have been on production in a given area and a "type curve" established, can the IP rate be used to approximate reserves.

There are several stories in the oil patch about the company who drills a well and based on it's IP, constructs a flowline, production facilities, and stakes several more offset wells (no doubt booking them as PUDs) only to have the well fizzle when put on production."

And another Bakken blog did a study and found:

"Unless I am missing something there is not much correlation between IP and the production in the ensuing month."

A commenter there wrote in,

"Glad someone finally pointed out that the IP and than the actual bbl's per day thereafter are never even close. The IP is usually a drill stem test, (open hole),without production equipment in place..."

Very interesting. I don't see how a Bakken well can avoid being a money-loser if its daily production has declined to ~100b/day within the first six months, especially for entities with high costs of capital.