Decline Curve

Decline Curve

The decline curve is a method for estimating reserves and predicting the rate of oil or gas production. The decline curve is a method used to determine estimated ultimate recovery (EUR) for an oil or gas reserve. Primarily based on well conditions, three types of decline curves can apply to the future trend: exponential, hyperbolic and harmonic. Knowing the decline curve can help a producer estimate the quantity of oil reserves that can come from a well over its lifetime, the present and future value of a well, and the rate at which assets should depreciate on a company’s books. In aggregate, the decline curve can also help determine the rate of production for a total reservoir or even multiple reservoirs. The decline curve is a method used to determine estimated ultimate recovery (EUR) for an oil or gas reserve. Underlying the decline curve equations is an expectation that well-production typically follows a three-part pattern. 1. In the initial phase production phase, the flow of oil or gas remains relatively steady, as pressure stays nearly constant. 2. Calculating the decline curve involves a curve-fitting exercise to interpolate the future rate of production based on past production levels.

The decline curve is a method for estimating reserves and predicting the rate of oil or gas production.

What is a Decline Curve?

The decline curve is a method for estimating reserves and predicting the rate of oil or gas production. It typically shows the pace at which production is expected to decline over the lifetime of an energy asset.

Knowing the decline curve can help a producer estimate the quantity of oil reserves that can come from a well over its lifetime, the present and future value of a well, and the rate at which assets should depreciate on a company’s books. In aggregate, the decline curve can also help determine the rate of production for a total reservoir or even multiple reservoirs.

The decline curve is a method for estimating reserves and predicting the rate of oil or gas production.
The decline curve is a method used to determine estimated ultimate recovery (EUR) for an oil or gas reserve.
Primarily based on well conditions, three types of decline curves can apply to the future trend: exponential, hyperbolic and harmonic.

How a Decline Curve Works

The decline curve is a method used to determine estimated ultimate recovery (EUR) for an oil or gas reserve. This calculation rests on a set of equations that U.S. geologist J.J. Arps developed in 1945. It is of the utmost importance that drilling projects meet an acceptable EUR threshold for a project to be considered viable and profitable.

In theory, the decline curve can apply to most wells in the industry. Underlying the decline curve equations is an expectation that well-production typically follows a three-part pattern. 

  1. In the initial phase production phase, the flow of oil or gas remains relatively steady, as pressure stays nearly constant.
  2. Next is a transient period in which the flow of oil or gas declines rapidly, as the quantity of recoverable assets and pressure in the wellbore decreases.
  3. Lastly, assets deplete to a level at which they approach the well’s defined boundaries.

Arps' decline curve equations most often apply to the boundary-defined production phase.

Calculating the decline curve involves a curve-fitting exercise to interpolate the future rate of production based on past production levels. Therefore, a somewhat lengthy period of time-series data is needed to estimate the projected trend. Also, the decline-curve equations assume that multiple variables involved in production and operations stay constant during the lifetime of a well asset. Primarily based on well conditions, three types of decline curves can apply to the future trend: exponential, hyperbolic and harmonic.

Pros and Cons of the Decline Curve

Analyzing the decline curve can be a more straightforward way to estimate production levels relative to more-complex simulations. However, using the decline curve also can be less accurate than simulations. 

Using the decline curve has several shortcomings, including that it can underestimate oil reserves, underestimate production rates, and overestimate reservoir performance. Because it relies on past data, the decline curve does not take into account the labor, equipment, and technology changes which could affect production rates. It also cannot account for the likelihood of geologic changes that more-complex models may be able to include to a degree. However, the Arps equations are still in use today.

Related terms:

Estimated Ultimate Recovery (EUR)

Estimated Ultimate Recovery (EUR) is a production term used in the oil and gas industry to describe the quantity of recoverable resource.  read more

Hubbert Curve

The Hubbert curve is a method for predicting the likely production rate of any finite resource over time. read more

Hubbert's Peak Theory

Hubbert’s peak theory predicts the rise, peak, and decline of global oil production. read more

Initial Production Rate

The initial production rate measures how many barrels of oil a day a new oil well produces, and is used as a proxy for an oil well’s future productivity. read more

Oil Reserves

Oil reserves are an estimate of the amount of crude oil located in a particular economic region. read more

Primary Recovery

Primary recovery is the first stage in extracting oil and gas. In crude oil production, various methods of primary recovery can be used. read more

PV10

PV10 is an estimated value of an energy company's proven oil and gas reserves and is used by analysts to forecast the potential of the company's stock. read more

Wellbore

A wellbore is a hole that is drilled to aid in the exploration and recovery of natural resources including oil, gas, or water. read more