Energy and natural resources
Decline rate
How fast production from existing oil and gas wells falls each year without new investment.
Last reviewedWhat does Decline rate mean?
The decline rate is the yearly percentage fall in output from existing wells and fields as pressure drops and reservoirs empty. Example: a field producing 100,000 barrels a day with an 8 percent decline rate will produce about 92,000 next year and about 84,600 the year after unless the operator drills new wells. Shale wells decline much faster in their first year than large conventional fields. This is why oil companies must keep investing just to stand still; the International Energy Agency has estimated that most upstream investment goes to offset declines rather than to grow supply.
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Related terms
- Capex (capital expenditure)Spending on long-lived assets such as machines and buildings.
- Lifting costThe cost of producing oil or gas from wells that already exist, per barrel.
- Full-cycle breakevenThe oil price a project needs to cover all its costs, including building it, and earn its required return.
- Churn and retentionThe share of customers who leave in a period, and the share who stay.
- Barrel of oil equivalent (boe)A unit that converts gas into barrels of oil by energy content, so oil and gas can be added together.
- Fiscal breakeven oil priceThe oil price a government needs to balance its budget.
- Crack spread (refining margin)The gap between the price of crude oil and the prices of the fuels made from it.
- NetbackWhat a producer keeps per barrel after transport, royalties and production costs.