November 14, 2024

Full Cycle Costs are one of the critical factors used by oil companies (in fact, by all involved in the gas and oil industries) for corporate planning, risk management, and various other purposes.

Full cycle costs are comprised of six major components:

  1. Finding & Development (~32% of the total): includes drilling, completion (casing, cementing, fracking), land and seismic, tie-in facilities and other incremental infrastructure costs, and dry hole rate.
  2. Cost of Capital (~22% of the total): how much would it cost for the oil company to borrow money for oil production.
  3. Operating Cost (~15% of the total): lifting and field processing costs. Operating cost is generally very similar for different basins.
  4. Royalties & Production Taxes (~19% of the total): taxes for government and royalties for owners of mineral rights.
  5. General and Administrative (G&A) or Overhead (~2% of the total): includes all expenses (ie head office) necessary for doing business.
  6. Basis Differential (~10% of the total): differential between the oil price at the point of sale (producing basin) and West Texas Intermediate (WTI) oil price.

Incorrys prepared a comprehensive analysis of North American crude oil and lease condensate full cycle costs (Q1 2022 through Q3 2024) for all major producing basins in the US and Canada. California is included for comparison. Canadian Oil Sands are not included.

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Some of the key findings include:

  • Permian Delaware has the lowest full cycle cost of all basins in North America and the only one under USD $50/Bbl.
  • The next six basins have full cycle costs below USD $60/Bbl, 2 in the US (Williston and Permian Midland) and 4 in Canada (SK Oil, Montney, AB Central, and Clearwater).
  • Outside of California (USD $160/Bbl), AB East Heavy Oil is the costliest in North America at just over USD $100/Bbl.
  • Canadian plays, being the furthest away from the WTI price point, have the widest basis differential to WTI at over USD $13/Bbl. This puts Canadian basins at a significant disadvantage compared to US basins. The Eagle Ford has a positive differential to WTI at USD -2.80/Bbl. Basis differential in Permian basin is also positive at USD -$1.25/Bbl.
  • Canada has lowest royalties and taxes at just over USD $10/Bbl. Permian Central and Midland have the highest taxes at almost USD $22/Bbl.
  • Canadian plays have the highest F&D, which contributes to overall higher full cycle costs compared to US basins. While well costs for Canadian plays are compatible with wells with similar depths in the US, Canadian wells have lower initial productivity and EUR (estimated ultimate recovery).

Full cycle costs in certain plays can be higher or lower than WTI for the following reasons:

  • The chart shows full cycle cost for the basins and play, while some oil companies may have lower full cycle cost for individual wells.
  • Some oil companies can sell their oil for higher prices, so actual basis differential will be narrower.
  • In certain cases, oil companies may fund their drilling program from operational income thereby reducing or eliminating cost of capital.
  • Some oil companies drill exploratory wells which can be more expensive than production wells and have more uncertainties.
  • WTI itself will fluctuate over time; WTI in this analysis is just under USD $80.

For Detailed Full Cycle Cost information, by Basin, See Also: Crude Oil Cost – US and/or Crude Oil Cost – Canada