How Much Money Does One Oil Well Really Make?

Summary: Breaking Down Oil Well Financials

This video provides a transparent, behind-the-scenes look at the economics of operating a single oil and gas well in Schliker County, West Texas. The presenter breaks down the monthly production numbers, revenue distribution, and the various expenses involved in maintaining the well, ultimately revealing the net profit and estimated value of the asset.

Production and Revenue

The specific well analyzed produced a total of 673 barrels of oil last month, averaging about 22 barrels per day. Before the operator sees any revenue, the mineral owner’s royalty (approximately 15%) is deducted. The remaining 85% represents the operator’s working interest. For this month, the total revenue available to the operator, after paying the mineral owner, stood at $30,283.

Operational Expenses and Taxes

Generating revenue incurs significant costs. The operator details several key expense categories:

Taxes: Nearly $3,000 was paid in severance tax to the state of Texas.
Transportation: Costs associated with trucking the oil from the central tank battery to the market.
Lease Operating Expenses (LOE): This broad category includes labor (pumpers), electricity (around $1,500/month), vehicle expenses, chemicals (like corrosion inhibitors), and maintenance.

Total expenses for the month amounted to approximately $5,800.

Net Income and Valuation

After subtracting taxes, transportation, and operating expenses from the revenue, the well generated a Net Operating Income (NOI) of $20,507 for the month. Using a standard industry valuation metric of “36 months of cash flow,” the presenter estimates the value of this single well to be approximately $738,000.

Final Thoughts

The video demonstrates that while oil wells can be highly profitable assets worth nearly three-quarters of a million dollars, they require active management and incur substantial ongoing costs to ensure safety and mechanical integrity.

Vocabulary Table

Term	Pronunciation	Definition	Used in sentence
Schliker County	/ˈʃlaɪkər ˈkaʊnti/	A county located in West Texas where the oil well discussed in the video is situated.	We’re here on one of our well locations in Schliker County, which is in West Texas.
Mineral Owner	/ˈmɪnərəl ˈoʊnər/	The entity or individual who owns the rights to the minerals (oil, gas) under the land and receives a royalty.	So on this particular well, we pay the mineral owner about 15% of every barrel that gets produced.
Royalty	/ˈrɔɪəlti/	A payment made to the mineral owner, typically a percentage of production, for the right to extract resources.	That is what we call the mineral owner’s royalty.
Working Interest	/ˈwɜːrkɪŋ ˈɪntrəst/	The percentage of ownership in an oil and gas lease that grants the right to explore, drill, and produce, bearing the costs of operations.	The mineral owner gets their 15%… and we get our working interest percentage, which is about 85%.
Severance Tax	/ˈsɛvərəns tæks/	A tax imposed by a state on the extraction of non-renewable natural resources.	Now, the first is the severance tax that we paid to the state of Texas.
Central Tank Battery	/ˈsɛntrəl tæŋk ˈbætəri/	A facility where oil and gas from one or more wells are collected, separated, and stored before transport.	In this case, the oil from this well is produced to a central tank battery.
Lease Operating Expenses (LOE)	/liːs ˈɒpəreɪtɪŋ ɪkˈspɛnsɪz/	The costs incurred by the operator to keep the well running and producing, also known as LOE.	We call these lease operating expenses… and these are direct expenses to us.
Pumper	/ˈpʌmpər/	An individual employed to monitor and maintain oil and gas wells and equipment in the field.	So we have lease operators or pumpers that manage this field for us.
Saltwater Disposal (SWD)	/ˈsɔːltˌwɔːtər dɪˈspoʊzəl/	The process or facility for disposing of the saltwater that is produced alongside oil and gas.	We’ve got SWD or saltwater disposal expenses.
Corrosion Inhibitor	/kəˈroʊʒən ɪnˈhɪbɪtər/	Chemicals added to the well or pipelines to prevent metal deterioration caused by fluids.	So certain chemicals, corrosion inhibitors… that we use in these wells in order to maintain mechanical integrity.
Mechanical Integrity	/məˈkænɪkəl ɪnˈtɛɡrəti/	The condition of operating equipment being sound and fit for purpose without leaks or structural weaknesses.	We use… other chemicals… to maintain mechanical integrity and make sure that they continue pumping.
Workover Crew	/ˈwɜːrkˌoʊvər kruː/	A specialized team and rig brought in to perform major maintenance or remedial operations on a well.	We have to have a workover crew bring a rig out here… and replace everything.
Net Operating Income (NOI)	/nɛt ˈɒpəreɪtɪŋ ˈɪnkʌm/	The revenue remaining after all operating expenses and taxes have been deducted.	And that leaves us with net operating income or NOI of $20,507 last month.
Cash Flow	/kæʃ floʊ/	The net amount of cash and cash-equivalents being transferred into and out of a business.	We typically like to pay 36 months or three years of cash flow.
Pump Jack	/pʌmp dʒæk/	The above-ground drive for a reciprocating piston pump in an oil well.	We spend about $1,500 a month just to run that pump jack.

Vocabulary Flashcards

While-viewing Tasks

Complete these tasks while watching the video:

Guided Notes

Fill in the key information as you watch:

Location of the well:
Total barrels produced last month:
Percentage paid to mineral owner:
Total revenue after royalties:
Net Operating Income (NOI):

Comprehension Questions

What is the “working interest” percentage for the operator?
What specific tax is paid to the state of Texas?
Why did they have to move locations during the video recording?

Terminology Checklist

Check off the terms as you hear them:

Embedded Video:

Fill in the Blanks Exercise

1. The video was filmed at a well location in County, West Texas.

2. The well produced a total of 673 of oil last month.

3. The royalty owner receives about 15% of every barrel, which is known as the owner’s share.

4. After paying the royalty, the operator is left with an 85% interest.

5. The first tax deducted from the revenue is the tax paid to the state.

6. Oil is produced to a central battery before being transported.

7. A truck comes by every couple of days to pick up a and take it to market.

8. Direct expenses for operating the well are called Lease Expenses.

9. Lease operators, also known as , manage the field for the company.

10. Electricity is a major expense used to power the units.

11. SWD stands for disposal expenses.

12. Chemicals like inhibitors are used to maintain the well’s integrity.

13. If a rod parts or there is a hole in the tubing, a crew is needed.

14. The money left after all expenses is called Net Operating (NOI).

15. To value a well, the investor often uses a multiple of 36 months of flow.

Extension Activities

Choose from these activities to extend your learning:

Investment Calculation

Using the “36 months of cash flow” rule, calculate the value of a hypothetical well that generates $15,000 in Net Operating Income per month. Then, research current oil prices and discuss how a 20% drop in price might affect this valuation.

Difficulty:
Medium

Expense Analysis

Work with a partner to categorize the expenses mentioned (Taxes, Labor, Maintenance, Chemicals). Discuss which expenses are likely “fixed” (stay the same regardless of production) and which are “variable” (change with production).

Difficulty:
Easy

The “Perfect Well” Pitch

Imagine your group is selling an oil well to investors. Create a pitch deck that highlights the revenue potential while honestly addressing the risks (mechanical failure, price drops, regulatory changes). Use the vocabulary from the video.

Difficulty:
Hard