September 2, 2021

Chart by Visualizer

Finding & Development (F&D) and operating costs account for over 50% of the crude oil full-cycle costs at 31% and 20% respectively. Royalties & production taxes and 15% producer returns account for more than a third at 18% each. The WTI differential accounts for 10% while overhead represents just 3%.

  • Producer Return or Cost of Capital – Calculated based on rate of return (15%) before income tax; equivalent to cost of capital. Individual producer’s actual rate of returns 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 WTI.
  • 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 on total resources for the particular 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 whole operation rather than a particular project.
  • Finding & Development (F&D) – Capital costs calculated based on producer’s disclosure and proprietary Incorrys data. F&D cost includes drilling, completion (including casing, cementing, fracking),  land and seismic, tie-in, facilities, and other incremental infrastructure costs.

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 2019-2020.