SPE 71431

An Analytical Solution to Estimate the Optimum Number of Development Wells to

Achieve Maximum Economical Return
R.D. Corrie, SPE, Inemaka, S.A.

Copyright 2001, Society of Petroleum Engineers Inc.

This paper was prepared for presentation at the 2001 SPE Annual Technical Conference and
Exhibition held in New Orleans, Louisiana, 30 September3 October 2001.
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Abstract
The preliminary estimate of the number of wells required to
exploit a reservoir is one of the most important variables
needed to decide on an oil field development. Traditionally,
the optimum number of wells has been determined graphically
from a plot of economic return verses well spacing. This paper
derives an equation to solve this problem directly without the
plot and presents an illustrative example for its application.
The independent variables of the equation are the reserves, the
initial production rate per well (assumed to decline over life),
the oil price at wellhead, the total present value cost per well
and the interest rate.
Introduction
At the onset of an oil field development, once the field size
has been delineated, one of the most important variables
needed to plan the development of an oil field is a preliminary
estimate of the number of development wells initially
required. Assuming homogeneous rock properties and ideal
geological conditions (uniform and continuos reservoir), the
ultimate primary recovery is independent of well spacing1.
Muskat2 visualized the well spacing problem from two points
of view: the physical ultimate recovery and the economic
ultimate recovery. From the physical standpoint there is a
minimum number of wells Wm required to achieve maximum
extraction. Increasing the number of wells beyond this number
would not increase the ultimate primary extraction. From the
economic ultimate recovery standpoint, giving no time limit
for a reservoir development projects life, it can be stated
axiomatically that at one extreme a few wells can drain the
whole reservoir, and at the other extreme, an unnecessary high
number of wells could effectively drain the reservoir more

rapidly, but at a high cost. In either case, the projects

economic return would be negatively affected. Between these
two extremes there ought to be an optimum number of wells
Wo that would yield maximum economic return. This concept
applies equally for vertical wells and/or horizontal wells. In
the real world however, reservoirs do not have homogeneous
physical properties neither there exist uniform and continuos
reservoirs. Traditionally, the optimum number of wells (well
spacing) has been determined graphically from a plot of
economic return verses well spacing as proposed by Muskat2.
A method to determine the optimum well spacing
straightforward without a plot was presented by Tokunaga and
Hise3. This method, however, assumes the production rate of
all wells to remain constant over life (no decline). The
analytical solution presented in this paper assumes the wells
initial production rate to decline over life and also that the
ultimate primary recovery is independent of well spacing.
The Optimum Number of Wells
The optimum number of wells can be determined analytically
by finding the maximum economic return from an equation
that expresses the net present value of the project over its
useful life as a function of the number of development wells,
following Muakats proposed economic method. The net
present value of an oil field development project can be
expressed approximately by the equation,
NPV (W) = df Np V - CW - Z

(1)

The economic model expressed by equation (1) has been

simplified by making the following assumptions:
The total cumulative oil production (reserves) remains
constant
The present net value is after income tax
All investments are incurred at year zero
All wells have the same initial oil production rate and
decline at the same rate over life. The decline rate is a
function of the number of wells, the initial daily oil
production rate and the total reserves.
The oil price is netted back to the wellhead
The discount factor (df) associated with the declining income
is estimated by the expression

R. D. CORRIE

df = PV (Np) / Np

(2)

The cumulative oil production (Np) from a number of wells

(W) is determined by the equation4,
Np = 365 W [Qi Qt] / [-ln (1 D)]

(3)

Neglecting Qt at economic limit (Qel),

Np = 365 W Qi / (-ln (1 D)

(4)

The present value of Np at interest rate (i) is estimated by the

equation
PV (Np) = 365 W Qi / [-ln [(1 D) / (1+ i)]]

5)

Details for deriving equations (3) and (5) are described in the
Appendix.
The discount factor df can be expressed as,
df = -ln (1 D) / [ -ln (1 D)+ln (1+i) ]

(6)

Finally, by replacing the expression -ln [(1 D) from

equation (4) in equation (6), the discount factor df can be
expressed as,
df = [365WQi/ Np)]/[(365WQi/ Np)+ln(1+i) ]

(7)

Replacing equation (7) in equation (1), we can express

NPV(W) as a function of W,
NPV(W)={365WQiV/[(365WQi/Np)+ln(1+i)]}-CW-Z
(8)
Differentiating NPV(W) with respect to W and making it
equal to zero in order to find the maximum value of NPV(W)
d (NPV(W))/d (W) = 0

(9)

the following quadratic equation is derived:

C (365 Qi / Np)2W2 + 730ln (1+i)C QiW/ Np 365 Qi Vln (1+i) + C(ln(1+i))2 = 0

(10)

Solving for W in the quadratic equation (10) we find the

optimum number of wells (Wo),
Wo = Np {ln(1+i)C-[365QVCln(1+i)]0.5}/(-365QC)
(11)
Details for arriving at equations (10) and (11) are described in
the Appendix.
Maximum profit is found by replacing W by Wo in equation
(8),

SPE 71431

NPV(Wo)=365 WoQiV/[(365 WoQi/ Np) + ln(1+i)] C Wo - Z

(12)
Uses and Limitations
Given the data below estimate the optimum number of wells
and the maximum economic return of the project:
Total cumulative oil production, Np: 14 MMSTB
Initial daily oil production rate, Qi : 600 STB/d
Oil price at well after income tax, V: 16 $/B
PV of capital investment after income tax, C: 2.4 $MM
per well.
PV of capital investments not dependent on the number of
wells after income tax, Z: 30 $MM
Productive area, A: 2000 acres
Interest rate, i: 0.10 p.a.
Results:
The optimum number of wells and its corresponding
maximum net present value are determined by using equations
(11) and (12) respectively:
Wo = 14000000* {ln (1+0.10) * 2400000-[365* 600* 16 *
2400000 * ln (1+0.10)]0.5} / (-365 * 600 * 2400000)
Wo = 17.8 ~ rounded to 18 wells
Well density = A / Wo 111 acres/well
Well spacing = 224 (acres)0.50 2360 ft (hexagonal)
From equation (4), D = 0.245 p.a.
NPV(18) = 365 * 18 * 600 * 16 / [(365 * 18 * 600 /
14000000) + ln (1+0.10)] 2400000 * 18 30000000
NPV(18) = 94.2MM$
Table 1 and Figure 1 present NPV(W) for various values of W
by use of equation (8) in order to determine the optimum
number of wells Wo by the traditional way, which is found to
be 18 (111 acres per well). A near optimum Wo could be
around 16 wells (125 acres per well) which yields about the
same order of magnitude of economic return than 18 wells. As
indicated in the introduction, the object of this paper is to
present an equation that gives directly a preliminary estimate
of the number of wells required to decide on the development
of an oil field. It is not a physiacal model. It uses a simplified
economic model latched on to an exponential production
decline model. It gives an indication of the order of magnitude
of the maximum economic benefit, beyond which additional
investment in the project will be uneconomic.
Table 2 presents a sensitivity analysis of the optimum
number of wells compared to the Base Case by varying the
interest rate (i) and the oil value (V).

SPE 71431

AN ANALYTICAL SOLUTION TO ESTIMATE THE OPTIMUM NUMBER OF DEVELOPMENT

WELLS TO ACHIEVE MAXIMUM ECONOMICAL RETURN

Conclusions
Assuming that the ultimate primary recovery is independent of
well spacing, the optimum number of wells to achieve
maximum economic return can be estimated directly following
the economic method proposed by Muskat. It uses as
independent variables the oil reserves, the initial oil
production rate per well (assumed to decline), the oil price
netted back to the well, the total present value cost per well
and the interest rate.

Appendix
A. Details for deriving Np in equation (3) and PV (Np) in
equation (5)4 :
The daily oil production rate Qt at time t is
Qt = Qi (1-D)t

(a)

The cumulative oil production Np from time 0 to time t

is,

Nomenclature
A = the productive area, acres
C = the present value of all capital investments per
well after income taxs effect, dollars
D = the yearly production decline rate, fraction p.a.
df= a discount factor function associated with a
declining income, adimensional
i= the interest rate or discount rate, fraction p.a.
Np = cumulative oil production during project life
(reserves), barrels
NPV (W) = the net present value as a function of the number
of wells, dollars
PV (Np) = the present value of reserves, barrels
Qel = the daily production rate per well at economic
limit, barrels per day
Qi = the initial daily oil production rate per well,
barrels per day
Qt = the daily oil production rate per well at time t,
barrels per day
V = the oil price netted back to the well after income
taxs effect, $/barrel
W = number of wells
Wm = the minimum number of wells required to
achieve maximum oil extraction
Wo = the optimum number of wells required to yield
maximum economic return
Z = the present value of other investments not
dependent on the number of wells after income
taxs effect, dollars
References
1.

2.
3.
4.

Craze, R.C. and S.F. Buckley: A Factual Analysis of the Effect

of Well Spacing on the Oil Recovery, Drilling and Production
Practices, API (1945).
Muskat, M. : Physical Principles of Oil Production, McGrawHill Book Company, Inc. (1949) 810-904.
Tokunaga, H. and Hise, B. R. :A Method to Determine
Optimum Well Spacing, SPE 1673 (1966).
Arps, J.J.: Estimation of Primary Oil Reserves, paper
presented at the Petroleum Conference-Economics and
Valuation, Dallas, Tex., March 1956

Si Metric Conversion Factors

acre x 4.046 873
E+03= m2
barrel x 1.589 873
E -01= m3
ft x 3.048*
E 01= m
*Conversion factor is exact

Np = 365 Qt dt

(b)

Np = 365 Qi (1-D)t dt

(c)

Np = [365 Qi (1-D)t / ln (1-D) ] + C | t=t , t=0

(d)

Making C=0 at t=0;

Np = 365 [Qi (1-D)t - Qi (1-D)0 ] / ln (1-D)

(e)

Np = 365 [Qi - Qt] / [-ln (1-D)] which is equation (3)

The present value of oil production rate PVQt at time t is
PVQt = Qi (1-D)t / (1+ i)t

(f)

The present value cumulative oil production PVNp from

time 0 to time t is,
PVNp = 365 PVQt dt

(g)

PVNp = 365 Qi {[(1-D)/(1+ i)]t } dt

(h)

Np = 365 Qi {[(1-D)/(1+i)]t / ln [(1-D)/(1+i)]} + C | t=t ,

t=0
(i)
Making C=0 at t=0;
Np = 365 {Qi [(1-D)/(1+i)]t - Qi [(1-D)/(1+i)]0 } / ln [(1D)/(1+i)]
(j)
Np = 365 [Qi - PVQt] / -ln [(1-D)/(1+i)]
(k)
Neglecting PVQt at economic limit, the present value of
cumulative oil production of W wells is
Np=365 W Qi /-ln [(1-D)/(1+i)], expressed in equation (5)
B. Details of obtaining the derivative of d(NPV(W))/d(W) in
equation (9) in order to find a maximum value of NPV(W) :
NPV(W)={365WQiV/[(365WQi/Np)+ln(1+i)]}-CW-Z (8)

R. D. CORRIE

Transforming expressions:
365 Q V
=F

SPE 71431

Table 2 Sensitivity Analysis on Wo

(l)
(m)

ln (1+i)

(n)

=H

NPV(W) = [FW/(GW+H)] - CW - Z

(o)

d (NPV(W))/d (W) = 0

(p)

d (FW/(GW+H)/d (W) - C = 0

(q)

[(F(GW+H)-GFW)/(G2W2+H2+2GHW)] - C = 0

(r)

F(GW+H)-GFW- CG2W2+CH2+2CGHW = 0

(s)

-CG2W2 2CGHW + (FH- CH2)=0

(t)

Solving for W in the quadratic equation (t):

W=[2CGH-(4C2G2H2+4CG2FH-4C2G2H2)0.5] / (-2CG2)

(u)

V, $/B
12
16
20

NPV, MM$

365 Q / Np = G

i = 0.10
14
18 (Wo , Base Case)
19

100
90
80
70
60
50
40
30
20
10
0
-10 0

10

i = 0.15
15
19
22

15

20

i = 0.20
16
20
24

25

30

N um ber of W ells

W = [2CGH 2G (CFH)0.5] / (-2CG2)

(v)

W = [ CH (CFH)0.5] / (-CG)

(w)

By replacing the expressions (l), (m) and (n) in equation

(w) it is obtained,
W =Np {ln(1+i)C-[365QVCln(1+i)]0.5}/ (-365QC), which
is the optimum number of wells Wo expressed in equation
(11).
Table 1 NPV(W) vs W
N of Wells (W)
1
4
8
12
16
17
18
19
20
24
28

NPV(W)
-0.8
49.2
78.0
89.8
93.8
94.1
94.2
94.0
93.7
91.0
86.8

Figure 1. Plot of NPV(W) verses W by use of equation (8) in order

to determine the optimum number of wells W o by the traditional
way.