economics · decline economics
Economic Limit Rate
qa = Annual LOE / (365 × Oil Price × NRI)
click formula to derive ↑
Inputs
$
$/STB
fraction
Description
Computes the economic limit rate — the production rate at which net revenue exactly covers fixed operating cost, below which the well is uneconomic to continue producing. Solves the same relationship the EUR from Decline Parameters calculator (Reservoir) takes as a direct input (qa) — use this calculator to derive that input from price, NRI, and operating cost rather than assuming a value.
Variables
| Symbol | Unit | Description |
|---|---|---|
| qa | STB/d | Economic Limit Rate |
| LOE | $ | Fixed annual cost to keep the well producing (lease operating expense), treated as independent of production rate for this calculation. |
| P | $/STB | Wellhead (netback) oil price used to value production. |
| 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 — see loe_per_unit for a per-unit (variable) cost view instead.
- Oil price and NRI are held constant — no price escalation 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 oil price or LOE inputs 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 economic limit rate somewhat.
- Does not include the cost or timing of eventual plugging and abandonment, workover capital, or any variable per-unit costs — see loe_per_unit for the per-unit-cost complement to this calculator.
- A single constant oil price is used; real economic limits shift as price moves, and a well below today's economic limit may be economic again at a higher price.
Use Cases
- → Abandonment planning: Estimate the production rate at which a well should be considered for shut-in or abandonment given current price and cost assumptions.
- → EUR sensitivity: Feed this result into the Economic Limit Rate (qa) input of the EUR from Decline Parameters calculator to see how estimated ultimate recovery shrinks as price falls or operating cost rises.
Related Calculations
Region Notes
General
Economic limit is price-sensitive by definition — the same well can swing from economic to uneconomic and back as oil price moves through a normal commodity cycle; treat this as a point-in-time result, not a permanent classification of the well.
References
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