November 13, 2024

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Finding & Development (F&D) and operating costs account for almost 50% of the crude oil full cycle costs at 32% and 15% respectively. Royalties & production taxes and producer returns account for just over 40% of the total at 19% and 22% respectively. The WTI differential accounts for 10% while overhead represents just 2%.

  • Producer Return or Cost of Capital – Calculated based on rate of return (15%) before income tax; equivalent to cost of capital. Individual producers’ actual rates of return may be higher or lower depending on commodity price.
  • Basis Differential – Differential between the oil price at the point of sale (in the producing basin) and West Texas Intermediate (WTI) for Oil or Henry Hub for Natural Gas.
  • Operating Cost – Lifting and field processing costs. The cost is calculated based on information reported by producers and Incorrys proprietary data. In most cases, producers report total operating cost per project. It is then divided by total resources for the project. Operating cost is generally very similar for different basins. Operating cost per unit of production increases if initial productivity decreases.
  • Royalties & Production Taxes – Taxes for government and royalties for freehold owners and others. Taxes include severance, conservation, and other taxes and are different for different jurisdictions.
  • Overhead – Includes all general and administrative (G&A) expenditures (head office); these costs are necessary expenses for doing business. Producers usually report overhead for the whole operation rather than a particular project.
  • Finding & Development (F&D) – Capital costs calculated based on producers’ disclosure and proprietary Incorrys data. F&D cost includes drilling, completion (including casing, cementing, and fracking), land and seismic, tie-in, facilities, and other incremental infrastructure cost.

Dry hole rate is included in the F&D cost calculation. Economic dry holes for conventional vertical wells can be up to 10% of total number of wells. Average dry hole rate is assumed to be 3% for unconventional basins.

Full-cycle cost data is the average for Q1 2022 through to Q3 2024.