Key Takeaways
- Total recoverable oil or gas from a reservoir.
- Combines production data, geology, and economics.
- Used for project viability and asset valuation.
- Includes proven, probable, and possible recovery estimates.
What is Estimated Ultimate Recovery (EUR)?
Estimated Ultimate Recovery (EUR) is the total volume of oil or gas expected to be economically recoverable from a well, reservoir, or field over its entire producing life. EUR includes both the volumes already produced and future estimates based on data analytics and reservoir characteristics.
EUR is a fundamental metric used to assess project viability, asset valuation, and forecast earnings in the energy sector, impacting investment decisions such as those involving Chevron and EOG Resources.
Key Characteristics
EUR is defined by several key traits that influence its accuracy and application:
- Comprehensive Measure: Combines historical production with forecasted output, reflecting the total recoverable volume.
- Dependent on Data Analytics: Relies on production trends and reservoir data to improve estimation precision (data analytics).
- Dynamic Metric: Adjusted over time as new technology or economic factors change recovery potential.
- Economic Basis: Reflects volumes that are not only technically recoverable but also economically viable considering market prices and costs (fair market value).
- Reserve Classification: Categorized by confidence levels such as proven, probable, and possible reserves.
How It Works
EUR estimation typically uses decline curve analysis, which fits production data to a trend line to project future output until production approaches zero. This method requires several months of data to increase reliability and is complemented by reservoir simulations and statistical modeling.
Economic factors like commodity prices and recovery technology advancements also play critical roles. For example, companies such as Chevron continuously update EUR estimates to reflect changes in oil prices and extraction efficiency, affecting their reported earnings and asset valuations.
Examples and Use Cases
EUR is applied in various scenarios within the energy industry to guide operational and financial decisions:
- Oil and Gas Companies: EOG Resources uses EUR to evaluate field development plans and optimize production strategies.
- Investment Analysis: Investors refer to EUR estimates when assessing the potential gains of energy stocks, including those highlighted in our best energy stocks guide.
- Project Viability: A project with an EUR below a certain threshold may be deemed unprofitable, influencing capital allocation by companies like Chevron.
Important Considerations
While EUR provides valuable insight into recoverable resources, it requires continuous updating due to changing reservoir conditions, technology improvements, and market fluctuations. Overreliance on initial estimates without incorporating new data can lead to inaccurate projections.
Understanding how EUR impacts fair market value and earnings can help you better interpret company performance and make informed investment choices in the energy sector.
Final Words
Estimated Ultimate Recovery (EUR) quantifies the total recoverable volume from a well or field, directly impacting project valuation and decision-making. To refine your investment strategy, review your EUR estimates regularly as production data and market conditions evolve.
Frequently Asked Questions
Estimated Ultimate Recovery (EUR) is the total volume of oil or gas expected to be economically recovered from a well, reservoir, field, or basin over its entire producing life, including both produced volumes and future estimates.
EUR is calculated using historical production data, reservoir properties, recovery technology, and economic factors like oil prices. Common methods include decline curve analysis, simulation models, and statistical approaches.
EUR helps assess project viability, calculate net present value, forecast corporate profits, and value assets. It is critical for making investment decisions and financial disclosures in the industry.
EUR volumes are categorized by recovery probability into Proven (90%+ confidence), Probable (50%+ confidence), and Possible (less than 50% confidence), reflecting the certainty of recovery with current technology.
Decline curve analysis fits past production rates to a curve and extrapolates future output until production nears zero. The total area under this curve represents the EUR for a well or field.
Yes, EUR estimates can evolve due to improved recovery techniques, changes in oil prices, or new infrastructure, which may increase recovery efficiency or reclassify reserves.
Several months of reliable production data are typically required for an accurate EUR estimate, as this helps capture production trends and reservoir behavior.
A project needs to meet a minimum EUR threshold to justify costs; if the expected recovery is too low, the project may be considered unprofitable and not pursued.
