What Is Finding And Development (F&D)?

Finding and development (F&D) refers to costs incurred when a company purchases, researches and develops properties in an effort to establish commodity reserves. Exploration and development businesses rely on finding commodities to manufacture and sell. Finding and development costs represent a cost of doing business for these types of companies.

Finding and development costs are also known as finding costs.

Key Takeaways

  • Finding and development (F&D) costs are those directly related to the discovery of oil (or another commodity) through exploration where it can then be extracted and sold.
  • Exploration involves geological surveys, seismic analysis, and the drilling of test wells, among other steps.
  • F&D costs can be computed as the ratio of money expended over commodities discovered.

Understanding Finding And Development

While the term finding and development can relate to costs incurred by any type of commodity company, it is commonly used in regards to the upstream costs of an oil or gas business. In this case, the costs of finding and development can be expressed per barrel. Finding costs are calculated over a given period of time. During that period, the amount of money spent to locate additional commodity reserves is tallied then divided by the additional quantity of reserves actually discovered during that same time period.

F&D costs are calculated by dividing the costs incurred during a period of time by the number of commodities found during that same time. Oil is usually measured in barrels; gas is often measured by a given quantity of cubic feet.

Exploration Costs

Oil exploration & production involves locating and extracting nonrenewable resources from the Earth; the process of oil and gas exploration and production typically involves four stages.

Exploration

At this stage, the search for hydrocarbons beneath the ground entails geophysical prospecting for shale formations that hold deposits of oil and natural gas. One method of exploration involves seismology, a process whereby substantial vibrations, via explosives or machinery, are produced at the Earth’s surface. Seismic waves travel to the Earth’s mantle, and the respondent force is analyzed at the surface to identify layers of rock that trap reservoirs of oil and natural gas. Exxon Mobil Corporation maintains many large exploratory fields in the Gulf of Mexico, extending operations to 339 deepwater blocks.

Well Development

After identifying potentially viable fields, engineers determine the number of wells needed to meet production requirements and the method of extraction of the liquid hydrocarbons. Platform construction costs are estimated with regard to the site, offshore or onshore, and designs are rendered for systems used to facilitate environmental protections. Newer drilling technologies, prominent in the Marcellus and Bennett shale fields in Pennsylvania and Texas, allow companies such as Chesapeake Energy Corporation to extend horizontal legs about 5,000 feet from vertical wells in search of natural gas pockets, producing four times as much gas at only twice the cost of a vertical well.

Abandonment

As exploratory sites are deemed unproductive or existing operations exhaust capacity, companies plug wells and attempt to restore the areas to environmental states that existed prior to drilling activities. As natural gas prices descended to historic lows in January 2016, many exploratory wells were shuttered as high production costs rendered extraction unprofitable. In 2014, the state of Ohio ramped up efforts to plug nearly 600 orphan wells that posed hazards to surface water and aquifers.