Another term for netback, when looking at Quarterly Reports, is a company’s Recycle Ratio.
Definition
A recycle ratio is quite simple, an oil and gas company puts a lot of money “in the ground” in order to make a profit from their well, this profit vs cost ratio is what we call recycle ratio. Ex. If a company spends 30 dollars/BOE and gets 90 dollars/BOE in return the recycle ratio would be 3:1.
What affects a company’s Recycle Ratio?
Typically services such as the completions, fracture stages used to complete the well, are the highest cost component when it comes to the overall price/well. Most of the other costs are out of the companies hands, for example the cost per BOE they sell at.
Assuming a 20 stage frac price @ 50k per stage = 1 million on completions alone
If the total cost of your well is 4 million, the completion works out to be ¼ the cost of the well.
By reducing the number of stages to 12 instead of 20, 400,000 savings on completions, and still provide the same production outcome this would allow you to increase your recycle ratio from 3:1x to 3.3:1x.
How to use Formation Evaluation data to your benefit:
Formation evaluation is a solution to:
Decreasing Frac Stages by better placement
Ensuring more consistent well to well production
Aiding in booking reserves
Providing accurate data for the geologists for future growth opportunities in that same formation or field
Bottom line: Formation evaluation typically costs less than one frack stage alone.
