{"id":31583,"date":"2025-07-16T12:34:48","date_gmt":"2025-07-16T17:34:48","guid":{"rendered":"https:\/\/breakingintowallstreet.com\/?post_type=biws_kb&#038;p=31583"},"modified":"2025-12-17T00:18:28","modified_gmt":"2025-12-17T05:18:28","slug":"type-curve-oil-and-gas","status":"publish","type":"biws_kb","link":"https:\/\/breakingintowallstreet.com\/kb\/oil-gas-modeling\/type-curve-oil-and-gas\/","title":{"rendered":"The Type Curve in Oil and Gas: Financial Modeling Master Key, or Academic Curiosity?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_81 counter-flat ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">The Type Curve in Oil and Gas: Financial Modeling Master Key, or Academic Curiosity?<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/breakingintowallstreet.com\/kb\/oil-gas-modeling\/type-curve-oil-and-gas\/#What_is_a_Type_Curve_Key_Vocabulary\">What is a Type Curve? Key Vocabulary<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/breakingintowallstreet.com\/kb\/oil-gas-modeling\/type-curve-oil-and-gas\/#From_Type_Curves_to_Financial_Models_and_Cash_Flows\">From Type Curves to Financial Models and Cash Flows<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/breakingintowallstreet.com\/kb\/oil-gas-modeling\/type-curve-oil-and-gas\/#The_Problems_with_Type_Curves_in_Real_Life\">The Problem(s) with Type Curves in Real Life<\/a><\/li><\/ul><\/nav><\/div>\n\n<blockquote><p><strong>Type Curve Oil and Gas Definition:<\/strong> In oil &amp; gas financial modeling, the \u201cType Curve\u201d plots the initial production (oil, gas, and natural gas liquids) from a specific type of well in a certain region and shows how that production declines over time; this curve is used to estimate the revenue, expenses, and CapEx associated with a well and its associated IRR and NPV.<\/p><\/blockquote>\n<p>You can see a real-life example of a <strong>Type Curve<\/strong> taken from an investor presentation by SilverBow Resources below:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31584 size-full\" title=\"Eagle Ford Type Curve Example\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16121954\/01-Eagle-Ford-Type-Curve.png\" alt=\"Eagle Ford Type Curve Example\" width=\"907\" height=\"664\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16121954\/01-Eagle-Ford-Type-Curve.png 907w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16121954\/01-Eagle-Ford-Type-Curve-300x220.png 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16121954\/01-Eagle-Ford-Type-Curve-768x562.png 768w\" sizes=\"(max-width: 907px) 100vw, 907px\" \/><\/p>\n<p>Type Curves are important because in <a href=\"https:\/\/breakingintowallstreet.com\/oil-gas-modeling\/\" target=\"_blank\" rel=\"noopener\">oil &amp; gas modeling<\/a>, you often set up projections for all the <strong>individual wells<\/strong> the company currently operates or plans to drill.<\/p>\n<p>Using a Type Curve, you can forecast the production from these wells and aggregate it across all the drilling years with functions such as OFFSET:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31585 size-full\" title=\"OFFSET to Aggregate Well-Level Production\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122029\/02-OFFSET-Production-Aggregation.jpg\" alt=\"OFFSET to Aggregate Well-Level Production\" width=\"2022\" height=\"814\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122029\/02-OFFSET-Production-Aggregation.jpg 2022w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122029\/02-OFFSET-Production-Aggregation-300x121.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122029\/02-OFFSET-Production-Aggregation-1024x412.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122029\/02-OFFSET-Production-Aggregation-768x309.jpg 768w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122029\/02-OFFSET-Production-Aggregation-1536x618.jpg 1536w\" sizes=\"(max-width: 2022px) 100vw, 2022px\" \/><\/p>\n<p>So, the Type Curve often forms the basis of an oil &amp; gas company\u2019s <strong>future cash flow growth<\/strong> (or, more precisely, an exploration &amp; production company\u2019s future growth, since many companies in oil &amp; gas perform non-drilling activities).<\/p>\n<p>Unfortunately, it can be difficult to use Type Curve analysis in real-life <a href=\"https:\/\/mergersandinquisitions.com\/financial-modeling\/\" target=\"_blank\" rel=\"noopener\">financial models<\/a>, especially when you are under time pressure to finish the model.<\/p>\n<div class='code-block code-block-14' style='margin: 8px 0; clear: both;'>\n<div class=\"kb-adinsert-modal\">\n    <div class=\"kb-adinsert-top\">\n      <div class=\"media\">\n          <img decoding=\"async\" class=\"alignnone size-full wp-image-28448\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/30185936\/OG-AI.png\" alt=\"Oil & Gas Modeling\" width=\"128\" height=\"128\" \/>\n      <\/div>\n      <div class=\"content\">\n          <h3>Dominate Your Investment Banking Interviews With <strong>BIWS Oil & Gas Modeling<\/strong><\/h3>\n      <\/div>\n    <\/div>\n    \n    <div class=\"full_text\">\n    \t<ul>\n        \t<li>\n            \t<h4>Learn the 3 major verticals<\/h4>\n              <p>You\u2019ll learn to build Upstream, Midstream, and Downstream models<\/p>\n\t\t\t    <\/li>\n          <li>\n          \t<h4>Master financial modeling<\/h4>\n            <p>Learn how to use the NAV Model, new valuation multiples, and O&G-specific nuances for the DCF and DDM<\/p>\n\t\t\t    <\/li>\n          <li>\n          \t<h4>Complete 3 detailed case studies<\/h4>\n            <p>Model Range Resources, Western Midstream Partners, and Saras S.p.A.<\/p>\n\t\t\t  <\/li>\n      <\/ul>\n        \n      <a class=\"cta-link orange-button-medium\" href=\"https:\/\/breakingintowallstreet.com\/oil-gas-modeling\/\" target=\"_blank\">Full Details<\/a>\n      \n      <a class=\"cta-link orange-button-medium bg-blue\" href=\"https:\/\/biws-support.s3.us-east-1.amazonaws.com\/Course-Outlines\/Oil-Gas-Modeling-Course-Outline.pdf\" target=\"_blank\" rel=\"noopener\">Short Outline<\/a>\n    <\/div>\n<\/div>\n<\/div>\n\n<p>Companies often provide partial or incomplete information or do not fully describe all their wells with Type Curves.<\/p>\n<p><strong>Also, Type Curves are not particularly useful for all the wells that are ALREADY producing oil\/gas\/NGLs; for most E&amp;P companies, these wells account for most of the <a href=\"https:\/\/breakingintowallstreet.com\/kb\/finance\/present-value\/\" target=\"_blank\" rel=\"noopener\">Present Value<\/a> in the valuation.<\/strong><\/p>\n<h3><strong>Files &amp; Resources:<\/strong><\/h3>\n<ul>\n<li><a href=\"https:\/\/youtube-breakingintowallstreet-com.s3.dualstack.us-east-1.amazonaws.com\/Oil-Gas\/Type-Curve\/Type-Curve-Oil-and-Gas-Slides.pdf\" target=\"_blank\" rel=\"noopener\">Type Curves in Oil and Gas \u2013 Slides (PDF)<\/a><\/li>\n<li><a href=\"https:\/\/youtube-breakingintowallstreet-com.s3.dualstack.us-east-1.amazonaws.com\/Oil-Gas\/Type-Curve\/Type-Curve-Oil-and-Gas.xlsx\" target=\"_blank\" rel=\"noopener\">Simple Type Curve Example (XL)<\/a><\/li>\n<li><a href=\"https:\/\/youtube-breakingintowallstreet-com.s3.dualstack.us-east-1.amazonaws.com\/Oil-Gas\/Type-Curve\/Eagle-Ford-Type-Curve.png\" target=\"_blank\" rel=\"noopener\">Type Curve Image \u2013 SilverBow Resources (PNG)<\/a><\/li>\n<li><a href=\"https:\/\/youtube-breakingintowallstreet-com.s3.dualstack.us-east-1.amazonaws.com\/Oil-Gas\/Type-Curve\/Range-Resources-Investor-Presentation.pdf\" target=\"_blank\" rel=\"noopener\">Range Resources Investor Presentation (PDF)<\/a><\/li>\n<\/ul>\n<h3><strong>Video Table of Contents:<\/strong><\/h3>\n<ul>\n<li><strong>0:00:<\/strong> Introduction<\/li>\n<li><strong>0:52:<\/strong> The Short Version<\/li>\n<li><strong>3:18:<\/strong> Part 1: What is a Type Curve? Key Vocabulary<\/li>\n<li><strong>6:18:<\/strong> Production Forecasts<\/li>\n<li><strong>8:48:<\/strong> Part 2: From Type Curves to Models and Cash Flows<\/li>\n<li><strong>17:14:<\/strong> Part 3: Real-Life Problems with Type Curves<\/li>\n<li><strong>19:16:<\/strong> Recap and Summary<\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"What_is_a_Type_Curve_Key_Vocabulary\"><\/span><strong>What is a Type Curve? Key Vocabulary<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>To understand Type Curves in oil &amp; gas modeling, you need to know a few key terms first:<\/p>\n<ul>\n<li><strong>D&amp;C Costs or D&amp;C:<\/strong> \u201cDrilling &amp; Completion\u201d; this is the upfront CapEx required to drill a new well.<\/li>\n<li><strong>EUR:<\/strong> This is the \u201cEstimated Ultimate Recovery,\u201d or the total amount of oil\/gas\/NGLs the company believes it can recover over the lifetime of the well in an economically feasible way. It\u2019s normally measured in Billion Cubic Feet Equivalent (Bcfe) for natural gas-dominant wells or Millions of Barrels of Oil Equivalent (MMBOE) for oil\/NGL-dominant wells.<\/li>\n<li><strong>IP or IP Rate:<\/strong> This stands for \u201cInitial Production\u201d and represents the <em>daily amount<\/em> of oil\/gas\/NGLs the well produces when it is first drilled. It\u2019s normally measured in Million Cubic Feet Equivalent per Day (Mmcfepd) or Thousands of Barrels of Oil Equivalent per Day (Mboepd) for oil-dominant wells.<\/li>\n<li><strong>B-Factor:<\/strong> This measures, roughly, the \u201csteepness\u201d of the decline curve after the well\u2019s initial production period. For hyperbolic decline curves, a <em>higher<\/em> B-Factor means a <em>shallower<\/em><\/li>\n<li><strong>Terminal Decline:<\/strong> This represents the <em>minimum<\/em> decline rate that the production from this well will ever reach, even if a formula predicts lower values.<\/li>\n<li><strong>LOE:<\/strong> This stands for \u201cLease Operating Expense\u201d and represents the fixed and variable costs associated with the well once it has been drilled and begins operating.<\/li>\n<li><strong>NPV-10:<\/strong> The <a href=\"https:\/\/breakingintowallstreet.com\/kb\/finance\/net-present-value\/\" target=\"_blank\" rel=\"noopener\">Net Present Value<\/a> of the well, including upfront CapEx and future cash flows, at the industry-standard 10% <a href=\"https:\/\/breakingintowallstreet.com\/kb\/finance\/discount-rate\/\" target=\"_blank\" rel=\"noopener\">Discount Rate<\/a>.<\/li>\n<li><strong>IRR:<\/strong> This represents the <a href=\"https:\/\/breakingintowallstreet.com\/kb\/leveraged-buyouts-and-lbo-models\/how-to-calculate-irr-manually\/\" target=\"_blank\" rel=\"noopener\">internal rate of return<\/a> on the well, factoring in the upfront CapEx and the future cash flows. Like all IRR metrics, it is roughly \u201cthe annualized rate of return,\u201d but it\u2019s often deceptively high in oil &amp; gas because the production is front-loaded.<\/li>\n<\/ul>\n<p>Once you understand all the parameters, you can use various formulas and equations to forecast production based on Type Curves.<\/p>\n<p>For example, one common formula for the production from a \u201chyperbolic decline curve\u201d is as follows:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31586 size-full\" title=\"Hyperbolic Decline Formula\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122056\/03-Hyperbolic-Decline-Fromula.jpg\" alt=\"Hyperbolic Decline Formula\" width=\"675\" height=\"210\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122056\/03-Hyperbolic-Decline-Fromula.jpg 675w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122056\/03-Hyperbolic-Decline-Fromula-300x93.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122056\/03-Hyperbolic-Decline-Fromula-325x100.jpg 325w\" sizes=\"(max-width: 675px) 100vw, 675px\" \/><\/p>\n<p>You can use this formula to project the Daily Production from the well <em>at the end of each year<\/em> over the ~40-year period shown here:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31587\" title=\"Daily Production Decline Curve\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122119\/04-Daily-Production-Decline-Curve.jpg\" alt=\"Daily Production Decline Curve\" width=\"700\" height=\"629\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122119\/04-Daily-Production-Decline-Curve.jpg 1150w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122119\/04-Daily-Production-Decline-Curve-300x270.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122119\/04-Daily-Production-Decline-Curve-1024x921.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122119\/04-Daily-Production-Decline-Curve-768x691.jpg 768w\" sizes=\"(max-width: 700px) 100vw, 700px\" \/><\/p>\n<p>Determining the \u201ctotal production\u201d each year based on the Daily Production numbers is tricky because, technically, you should use an integral to calculate <strong>the area under the curve<\/strong>.<\/p>\n<p>However, if the decline rates are low, you can use simple averages or other numerical approximations and multiply the \u201caverage\u201d Daily Rate by 365:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31588\" title=\"Simple Average for the Annual Production from a Type Curve\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122144\/05-Simple-Average-Annual-Production.jpg\" alt=\"Simple Average for the Annual Production from a Type Curve\" width=\"600\" height=\"277\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122144\/05-Simple-Average-Annual-Production.jpg 961w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122144\/05-Simple-Average-Annual-Production-300x138.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122144\/05-Simple-Average-Annual-Production-768x354.jpg 768w\" sizes=\"(max-width: 600px) 100vw, 600px\" \/><\/p>\n<h2><span class=\"ez-toc-section\" id=\"From_Type_Curves_to_Financial_Models_and_Cash_Flows\"><\/span><strong>From Type Curves to Financial Models and Cash Flows<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Once you have the production profile, you must <strong>check the cumulative well production against the EUR<\/strong> and split it into oil, gas, and NGLs.<\/p>\n<p>Since the EUR is 14.25 Bcfe here, a single well can never produce more than that; if cumulative production reaches that level, it should immediately go to 0.<\/p>\n<p>You can enforce this rule with a simple MIN function in Excel:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31589\" title=\"Production Constraints Based on the EUR\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122450\/06-Production-Constraints-EUR.jpg\" alt=\"Production Constraints Based on the EUR\" width=\"600\" height=\"339\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122450\/06-Production-Constraints-EUR.jpg 1267w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122450\/06-Production-Constraints-EUR-300x169.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122450\/06-Production-Constraints-EUR-1024x578.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122450\/06-Production-Constraints-EUR-768x433.jpg 768w\" sizes=\"(max-width: 600px) 100vw, 600px\" \/><\/p>\n<p>In a more robust model, you\u2019d add a \u201cRemainder\u201d row at the bottom to account for the possibility of production continuing past Year 40:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31590\" title=\"Remainder Row for Well Production and Cash Flows\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122512\/07-Remainder-Row.jpg\" alt=\"Remainder Row for Well Production and Cash Flows\" width=\"600\" height=\"457\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122512\/07-Remainder-Row.jpg 959w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122512\/07-Remainder-Row-300x229.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122512\/07-Remainder-Row-768x585.jpg 768w\" sizes=\"(max-width: 600px) 100vw, 600px\" \/><\/p>\n<p>The next step is to <strong>forecast the revenue and expenses<\/strong> associated with the well, typically based on constant gas, NGL, and oil prices, fixed\/variable LOE, and variable transportation\/processing costs, on either a $ \/ Mcfe or $ \/ BOE basis:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31591 size-full\" title=\"Natural Gas Revenue\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122535\/08-Gas-Revenue.jpg\" alt=\"Natural Gas Revenue\" width=\"1960\" height=\"508\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122535\/08-Gas-Revenue.jpg 1960w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122535\/08-Gas-Revenue-300x78.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122535\/08-Gas-Revenue-1024x265.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122535\/08-Gas-Revenue-768x199.jpg 768w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122535\/08-Gas-Revenue-1536x398.jpg 1536w\" sizes=\"(max-width: 1960px) 100vw, 1960px\" \/><\/p>\n<p>And the final step is to link in the D&amp;C Costs for the upfront CapEx, calculate the Cash Operating Income, determine the total Pre-Tax Cash Flow, and calculate the IRR and NPV-10:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31592\" title=\"IRR and NPV-10 from a Type Curve and Cash Flow Forecast\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122600\/09-IRR-NPV-10.jpg\" alt=\"IRR and NPV-10 from a Type Curve and Cash Flow Forecast\" width=\"500\" height=\"851\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122600\/09-IRR-NPV-10.jpg 766w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122600\/09-IRR-NPV-10-176x300.jpg 176w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122600\/09-IRR-NPV-10-602x1024.jpg 602w\" sizes=\"(max-width: 500px) 100vw, 500px\" \/><\/p>\n<p>In a full financial model, such as the Net Asset Value (NAV) Model commonly used for E&amp;P companies, this Type Curve is one small component of one schedule.<\/p>\n<p>The next step is to <strong>aggregate production<\/strong> from all the <strong>new wells drilled<\/strong> in each year of the model, which you can do with an OFFSET function:<\/p>\n<p><img decoding=\"async\" class=\"alignnone wp-image-31585 size-full\" title=\"OFFSET to Aggregate Well-Level Production\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122029\/02-OFFSET-Production-Aggregation.jpg\" alt=\"OFFSET to Aggregate Well-Level Production\" width=\"2022\" height=\"814\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122029\/02-OFFSET-Production-Aggregation.jpg 2022w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122029\/02-OFFSET-Production-Aggregation-300x121.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122029\/02-OFFSET-Production-Aggregation-1024x412.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122029\/02-OFFSET-Production-Aggregation-768x309.jpg 768w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122029\/02-OFFSET-Production-Aggregation-1536x618.jpg 1536w\" sizes=\"(max-width: 2022px) 100vw, 2022px\" \/><\/p>\n<p>Next, you create a \u201croll-up\u201d for the revenue, expenses, and cash flows from these wells toward the bottom of the sheet:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31593\" title=\"Cash Flow Aggregation\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122643\/10-Cash-Flow-Aggregation.jpg\" alt=\"Cash Flow Aggregation\" width=\"600\" height=\"454\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122643\/10-Cash-Flow-Aggregation.jpg 1180w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122643\/10-Cash-Flow-Aggregation-300x227.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122643\/10-Cash-Flow-Aggregation-1024x775.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122643\/10-Cash-Flow-Aggregation-768x581.jpg 768w\" sizes=\"(max-width: 600px) 100vw, 600px\" \/><\/p>\n<p>In oil &amp; gas, it\u2019s critical to analyze the future cash flows and their Present Value <em>separately for each region and\/or well type<\/em>, so it helps to make this as granular as possible.<\/p>\n<p>Other components of this NAV Model might consist of the company\u2019s production or well types in other regions and its cash flows from <strong>existing wells that are already producing<\/strong> (called \u201cPDP\u201d or \u201cProved Developed Producing\u201d wells).<\/p>\n<h2><span class=\"ez-toc-section\" id=\"The_Problems_with_Type_Curves_in_Real_Life\"><\/span><strong>The Problem(s) with Type Curves in Real Life<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Almost every single book and course about oil &amp; gas modeling presents Type Curves as an extremely important topic\u2026<\/p>\n<p>\u2026and it\u2019s true that <em>interview questions<\/em> about them are quite common, so it helps to know the theory and their use cases.<\/p>\n<p><strong>But in real life, it is much harder to use Type Curves because not all companies disclose the required information consistently, and even when they do, Type Curves do not \u201cmesh\u201d well with the company\u2019s existing production.<\/strong><\/p>\n<p>This example from SilverBow Resources above is unusual because large E&amp;P companies rarely offer this much detail.<\/p>\n<p>Instead, you often see summary production schedules like this one from Range Resources:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31594 size-full\" title=\"Summary Production by Year\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122808\/11-Summary-Production-by-Year.jpg\" alt=\"Summary Production by Year\" width=\"2279\" height=\"771\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122808\/11-Summary-Production-by-Year.jpg 2279w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122808\/11-Summary-Production-by-Year-300x101.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122808\/11-Summary-Production-by-Year-1024x346.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122808\/11-Summary-Production-by-Year-768x260.jpg 768w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122808\/11-Summary-Production-by-Year-1536x520.jpg 1536w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122808\/11-Summary-Production-by-Year-2048x693.jpg 2048w\" sizes=\"(max-width: 2279px) 100vw, 2279px\" \/><\/p>\n<p>If you get summary data like this, you can\u2019t use any of the hyperbolic decline curve formulas to project production since you don\u2019t know the B-Factor and other key inputs.<\/p>\n<p>Instead, you must create \u201crough approximations\u201d based on the percentage of the well\u2019s EUR produced in each year:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31595\" title=\"Rough Approximations for the Production Decline Curve\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122834\/12-Rough-Approximations.jpg\" alt=\"Rough Approximations for the Production Decline Curve\" width=\"600\" height=\"447\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122834\/12-Rough-Approximations.jpg 1113w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122834\/12-Rough-Approximations-300x223.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122834\/12-Rough-Approximations-1024x763.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122834\/12-Rough-Approximations-768x572.jpg 768w\" sizes=\"(max-width: 600px) 100vw, 600px\" \/><\/p>\n<p>So, while the Type Curve is nice in theory, you often end up making quick approximations for the production curve in real life.<\/p>\n<p><strong>Another problem with Type Curves is that they\u2019re only useful for modeling *new wells* from the company\u2019s Proved Undeveloped (PUD) Reserves and any Probable (PROB) or Possible (POSS) Reserves, which are far more speculative.<\/strong><\/p>\n<p>But most E&amp;P companies\u2019 values come primarily from their <em>existing, producing wells<\/em>, not these new, future wells:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31596 size-full\" title=\"Pre-Tax Asset Values by Reserve Type\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122902\/13-Pre-Tax-Asset-Value.jpg\" alt=\"Pre-Tax Asset Values by Reserve Type\" width=\"1635\" height=\"363\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122902\/13-Pre-Tax-Asset-Value.jpg 1635w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122902\/13-Pre-Tax-Asset-Value-300x67.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122902\/13-Pre-Tax-Asset-Value-1024x227.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122902\/13-Pre-Tax-Asset-Value-768x171.jpg 768w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122902\/13-Pre-Tax-Asset-Value-1536x341.jpg 1536w\" sizes=\"(max-width: 1635px) 100vw, 1635px\" \/><\/p>\n<p>The Type Curve doesn\u2019t work for modeling this production and these cash flows because you don\u2019t know the \u201cstart date\u201d of each well.<\/p>\n<p>If a company has 500 wells, 50 might have been drilled last year, 30 the year before, and 40 the year before that, and you have no idea of each one\u2019s current production level.<\/p>\n<p>And no companies <em>ever<\/em> disclose this information in their public filings or investor presentations.<\/p>\n<p>You normally make simplifying assumptions for this production, such as a modest decline rate that decreases gradually over time, or even a fixed decline rate that \u201cfits\u201d the company\u2019s expected Reserve Life Ratio (the R \/ P Ratio, defined as Proved Reserves \/ Annual Production).<\/p>\n<p>In the NAV Model referenced here, we use a simple Goal Seek to determine a fixed 4-5% decline rate for this entire production segment:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31598\" title=\"PDP Decline Rate Approximation\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122948\/14-PDP-Decline-Rate.jpg\" alt=\"PDP Decline Rate Approximation\" width=\"600\" height=\"275\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122948\/14-PDP-Decline-Rate.jpg 1102w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122948\/14-PDP-Decline-Rate-300x138.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122948\/14-PDP-Decline-Rate-1024x470.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/07\/16122948\/14-PDP-Decline-Rate-768x353.jpg 768w\" sizes=\"(max-width: 600px) 100vw, 600px\" \/><\/p>\n<p>A purist would dispute this approach and call for something more complicated, but it\u2019s fine if you have limited time or the company does not disclose its information in a useful way.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In oil &#038; gas financial modeling, the \u201cType Curve\u201d plots the initial production (oil, gas, and natural gas liquids) from a specific type of well in a certain region and shows how that production declines over time; this curve is used to estimate the revenue, expenses, and CapEx associated with a well and its associated IRR and NPV.<\/p>\n","protected":false},"featured_media":0,"template":"","class_list":["post-31583","biws_kb","type-biws_kb","status-publish","hentry","kb_category-oil-gas-modeling"],"acf":[],"_links":{"self":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/biws_kb\/31583","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/biws_kb"}],"about":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/types\/biws_kb"}],"wp:attachment":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/media?parent=31583"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}