Well Economics Calculator

Exponential decline is the standard model for oil and gas well production because the underlying physics — reservoir pressure depleting as fluid is withdrawn — produces a curve that falls by a constant percentage of the remaining rate each period, not a constant absolute amount. This means a well loses more barrels per month early in its life when rates are high, and progressively fewer barrels per month later on even though the percentage decline rate stays the same.

Total revenue simply adds up every dollar earned over 20 years with no regard for when it arrived, while NPV specifically discounts cash flow that arrives later to reflect that money in the future is worth less than money today. A well with most of its production and revenue concentrated in the first few years (typical of a steep decline rate) will show a healthier NPV than one earning the same total revenue spread thin over two decades, because the discounting penalty compounds the longer cash flow takes to arrive.

It's a sentinel value indicating the well's cumulative cash flow never turned positive within the full 240-month (20-year) projection window used by this calculator — in other words, under the entered assumptions, the well never fully recoups its upfront drilling and completion cost within that horizon. It isn't a literal prediction that payback would occur at month 999; it's a flag that payback wasn't reached in the modeled timeframe at all.

Royalty owners have a claim on gross production revenue itself, independent of how much it costs to operate the well, so royalty is calculated and removed first to arrive at the operator's net revenue. Operating costs and taxes are then applied to that already royalty-reduced figure, which mirrors how real oil and gas revenue distribution works — royalty interest is paid off the top, before the working interest owner's operating expenses and tax liability are ever considered.