What is Initial Production
The initial production rate measures how many barrels of oil a day a new oil well produces. It is used as a proxy for an oil well’s future productivity.
BREAKING DOWN Initial Production
The initial production rate is important because it is used to extrapolate a well’s total production, its peak production level and the rate at which production will decline – using decline curve analysis.
The exploration and production industry provides guidance to investors on average IP rates, and how that production is expected to rise/decline over the next two years. Initial production rates are reported inconsistently, but companies increasingly use 24-hour, 30-day, 60-day and 90-day initial production rate periods.
Oil wells typically have an initial production rate that is fairly small compared to peak production, because oil production follows a bell curve. But shale oil wells decline much more rapidly after the initial surge. Production can fall to 50-85% of the IP rate within a year, and to less than 10% of their IP rate after three years.
Given these rates of decline, some analysts argue that U.S. shale production could hit peak oil sooner than expected, and that shale oil fields like the Bakken Shale and Eagle Ford Shale have already seen peak production rates.