Oil and Gas Decline Curves in 2024

An oil and gas decline curve, also known as a production decline curve, is a term that gets thrown around frequently.  For mineral owners, this can be a confusing term.  However, it’s an important thing to understand.  An oil and gas decline curve affects the value of your property and the royalty checks to receive.  If you want to learn more about and oil and gas decline curve and how it impact you then you came to the right place!

An oil and gas decline curve is an estimate of amount of production from a well.  While all wells are different, the production from a well will follow a very similar path.  Each well starts out with a lot of production, quickly declines in production during the first 3 to 5 years, then slowly depletes over time.

When you look at the oil and gas decline curve in the photo above, you can see how it starts out with a very high amount of production (and royalty checks) and then drops quickly.   Then over a number of years it will decline but at a much slower rate.

Now that you know what an oil and gas decline curve is, what does that actually mean for you?  Here are the ways an oil and gas decline curve affects you:

• New Royalty Owners:   If you just started receiving royalties checks, the oil and gas decline curve effects you in a big way.  Look at the example provided in oil and gas decline curve below.  As you can see, during the first 12 months the checks start out very large at about $25,000/year or $2,000/month, then declines all the way to just $3,200/year or $260/month by the 5 year mark.  That’s a huge decrease!   It’s important to understand that the price you receive right after a well starts producing is NOT what you will receive forever.  The first 12 months have the biggest decline.  From 12 months to 60 months you will still see a significant decline until it eventually levels off.
• Royalty Checks Over Time:  Once you get 3 to 5 years beyond initial production decline curve, the amount you receive monthly will get more consistent.  Keep in mind that the oil and gas decline curve shows a decrease over the life of the well.  Even after 3 to 5 years you will see a very gradual decline in the amount of your royalty checks.

One common mistake mineral owners make is valuing their royalties on the amount they receive today.   It’s important to understand that the value of your property is quickly declining.   This is why some royalty owners decide to sell royalties.  To get a guaranteed amount now.

The market value of royalties is going to depend on how long your property has been producing.  Buyers will value your property based on the expected decline curve over the life of the property.  A well that has been producing for 3 months and generates a large amount of cash won’t be generating that much just months later.

If you are thinking about selling royalties we can help.  At US Mineral Exchange we help royalty owners sell for maximum value.  Get started by listing mineral rights today.

Image courtesy of Geology.com