As commodity prices stabilize and operators transition from resource capture to development and consolidation, corporate planners and investors are turning their attention to full-cycle economics in their decision making. Full-cycle economics include land acquisition costs and corporate-level expenses, while half-cycle economics account for just the drilling, completing and tie-in costs and represent a binary “drill/no-drill” decision,Figures 1 and 2.
Full-cycle economics bring important yet often excluded costs back into the picture and answer a critical question:
If an operator started from scratch and entered a basin at a given acreage value, what breakeven price does it need going forward for the investment to remain economic? Basins priced on a full-cycle basis are unlikely to receive attention, and operators will likely avoid deploying new capital, or consolidating, into these basins.
FIGURE 1 | Terminology of Economics
HALF-CYCLE: Drilling, Completion and Tie-In Costs No Corporate Overheard Costs (G&A)
3/4-CYCLE: Includes Facilities Capital Tied to Corporate-Level Capital Efficiency Includes G&A
FULL-CYCLE: Includes Land Acquisition Costs Does not Include Financing Costs
FIGURE 2 | Half-Cycle Breakevens for Major North American Plays
