economics · decline economics
Breakeven Oil Price
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Inputs
$
STB/d
fraction
Description
Computes the oil price at which net revenue exactly covers fixed operating cost at a given production rate — the price-based break-even complement to economic_limit_rate's rate-based break-even. Solves the identical break-even relationship, rearranged for price instead of rate, so the two calculators can never silently disagree.
Variables
| Symbol | Unit | Description |
|---|---|---|
| P | $/STB | Breakeven Oil Price |
| LOE | $ | Fixed annual cost to keep the well producing (lease operating expense), treated as independent of production rate for this calculation — same convention as economic_limit_rate. |
| q | STB/d | Current or assumed oil production rate at which to evaluate the break-even price — the rate economic_limit_rate would instead solve for if price were fixed. |
| NRI | fraction | Net revenue interest applied to production revenue — see the Net Revenue Interest calculator to derive this from working interest and royalty burden. |
Assumptions
- Operating cost is treated as a fixed annual amount, independent of production rate — same convention as economic_limit_rate.
- Oil production rate and NRI are held constant at the entered values — no decline or NRI change over time is modeled.
- Pre-tax: no severance or ad valorem tax is deducted from revenue before comparing to operating cost.
- Single-stream (oil) economics — associated gas/NGL revenue is not included unless folded into the LOE input by the user.
Limitations
- Real lease operating expense is rarely purely fixed — a portion typically scales with produced fluid volumes (especially water); treating all LOE as fixed will understate the true break-even price somewhat.
- Does not include the cost or timing of eventual plugging and abandonment, workover capital, or any variable per-unit costs.
- Uses a single production rate rather than a declining production schedule — as the well's actual rate declines over time, its true break-even price at that later, lower rate rises above this result.
Use Cases
- → Price sensitivity screening: At a well's current or assumed production rate, find the oil price below which it stops covering its fixed operating cost.
- → Hedging and price-floor planning: Determine the minimum oil price a hedge or price floor needs to protect against, for a well producing at a specific rate.
Related Calculations
Region Notes
General
Break-even price is production-rate-sensitive by definition — the same well can swing from economic to uneconomic and back as its rate declines through field life, even at a constant oil price; treat this as a point-in-time result at the entered rate, not a permanent classification of the well.
References
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