After a half-decade of confusing metrics on well intensity, it is time to embrace a new approach for evaluating E&P performance.
Seems like only yesterday that E&Ps adopted language that incorporated variations on barrels of oil equivalent (boe) per 1,000 foot of lateral, or IP-24 hour, IP-30 day, or 180-day cum’s, or capital efficiency measurements anchored to drilling day reductions, or completed stages per day. And let’s not forget type curves, the arbitrary designation where every headline well’s estimated ultimate recovery is better than average. Such metrics were proffered to the financial community as a Rosetta Stone to decipher the mishmash of results that populated E&P press releases and quarterly earning calls.
Now that the oil and gas industry has embarked on a new business model in which E&Ps operate like a standard business emphasizing profitability vs. the old model of growth at any cost, focus is narrowing to metrics that impact financial performance. In the cash constrained new era of energy, metrics that matter most involve a “show-me-the-money” measurement that reveals sustainable positive net cash flow at the bottom line.