What is Recycle Ratio?
Recycle Ratio helps oil companies determine efficiency and overall profitability by comparing profit per barrel of oil against the costs of finding and developing that oil.
If you're an investor or involved in the energy sector, understanding the Recycle Ratio can help you make better decisions. This metric can reveal if an oil field is a gold mine or a money pit, saving you valuable time and resources.
How to Calculate Recycle Ratio
Formula
[\text{Recycle Ratio (RR)} = \frac{\text{Profit Per Barrel of Oil}}{\text{Cost of Finding and Developing the Oil}}]
Where:
- Profit Per Barrel of Oil is the financial gain for each barrel of oil produced
- Cost of Finding and Developing the Oil is the investment needed to explore and prepare the oil for production
Steps
- Determine Profit Per Barrel: Find out how much profit you're making from each barrel
- Determine Development Costs: Get the numbers on how much it costs to get that oil out of the ground
- Apply the Formula: Divide profit by cost to get your ratio
Calculation Example
Suppose:
- Profit per barrel of oil: $50
- Cost of finding and developing: $25
[\text{RR} = \frac{50}{25} = 2]
The Recycle Ratio is 2. This means for every dollar spent on finding and developing oil, there's a return of two dollars.
| Variable | Value |
|---|---|
| Profit per barrel ($) | 50 |
| Cost of finding and developing ($) | 25 |
| Recycle Ratio | 2 |
A higher recycle ratio typically indicates a more profitable and efficient operation.