New York Paper - Modified Oil-well Depletion Curves (with Discussion)

Oil-well depletion curves, to be of value, should show when a well or lease may no longer be operated at a profit. The difference, at any time, between the total expenditures and the total income of a lease or well may be called the lease status. Plotting this lease status against time will give a curve subject to more accurate and different interpretations than the barrels-time curves. According to the hypothetical barrels-time curves shown in Fig. 1, well A, at the end of 16 mo., is producing twice as much oil as well B and will continue to produce for another year whereas well B will cease producing in about 6 months. Data fob Lease Status-time or Dollars-timb Curve Time Lease Months Status Lease purchased for $3000.............................. 0 — $ 3,000 No expenses chargeable to lease for 3 mo................. 2 — 3,000 Well A is started; cost of drilling for month is $16,000..... 3 — 19,000 Well is completed at additional cost of $10,000............ 4 - 29,000 Well A is brought in and flows 10,000 bbl. first month (we Fig. 1). Necessary to invest in tanks, boilers, pipe lines, etc.; difference between expenditures and receipts gives profit for month of $5,000............................ 5 — 24,000 Investment is small, cost of operating well A is small, so profits are $15,000................................... 6 — 9,000 Well ceases to flow so there is additional investment for pumping equipment and additional operating expense; net earnings from 6,000 bbl. of oil produced is $4,000. 7 ... Lease operation nor becomes normal and curve becomes smooth........................................... 8 — 500 9 2,000 10 4,500 11 6,000 12 7,700 13 8,700 14 9,000 15 9,500 16 10,000 A hypothetical lease status-time, or dollars-time, curve of this lease is shown in Fig. 2. At zero time, the lease is purchased for $3000, which is plotted below the zero dollar line, All subsequent entries are plotted