Finding and development cost, often shortened to F&D cost, relates upstream oil-and-gas investment to the reserves added or developed by that spending.
A simplified form is:
F&D cost per BOE = applicable finding and development spending ÷ applicable reserve additions
The arithmetic is simple. The difficult part is deciding which spending and which reserve additions belong in the calculation. F&D is not one universally standardized GAAP ratio, so issuer definitions matter.
A simple F&D example
Suppose a producer spends $600 million on drilling and completion activity and attributes 50 million BOE of organic proved developed reserve additions to that program.
F&D cost = $600 million ÷ 50 million BOE = $12 per BOE
That $12 per BOE is meaningful only if the numerator and denominator use a consistent definition. It should not automatically be compared with another producer's measure that includes acquisitions, uses total proved additions, or includes different categories of capital.
Why F&D definitions differ
Companies can construct reserve-cost measures around different questions. A reported metric might use:
- total proved reserve additions;
- organic reserve additions excluding acquisitions;
- proved developed additions;
- proved undeveloped additions;
- drilling and completion capital only;
- exploration plus development spending;
- acquisition spending; or
- future development costs associated with proved undeveloped reserves.
Those are not interchangeable calculations.
An investor should therefore reconstruct the formula from the filing or presentation before comparing headline per-BOE numbers.
F&D cost is not lifting cost
F&D and Lifting Cost answer different questions.
F&D cost asks roughly how much capital is being spent to add or develop reserves.
Lifting cost asks how much it costs to operate producing assets and bring existing production to the surface under the issuer's stated cost convention.
A producer can have low lifting costs on mature fields while facing high costs to replace the reserves it is depleting. The reverse can also occur.
Reserve revisions can distort the denominator
Reserve additions are not created only by drilling.
Reported proved reserves can change because of:
- extensions and discoveries;
- improved recovery;
- technical revisions;
- commodity-price revisions;
- acquisitions;
- divestitures; and
- production.
If a company's F&D denominator includes favorable revisions that did not require equivalent current-period capital, the reported cost per BOE can look lower without representing a directly comparable drilling result.
That is one reason organic and acquisition-adjusted measures need explicit labels.
A low F&D cost is not automatically value creation
A lower cost per reserve BOE can be economically attractive, but it does not by itself establish a good investment return.
Reserve value also depends on:
- oil, gas, and NGL mix;
- expected production timing;
- realized prices;
- royalties and taxes;
- operating and transportation costs;
- future development spending;
- decline rates;
- infrastructure constraints; and
- the certainty and development status of the reserves.
Cheap reserve additions that generate poor future margins can destroy value. More expensive additions can still earn strong returns if their production economics are superior.
Investor workflow
When comparing F&D metrics, keep four items aligned:
- Reserve class: total proved, proved developed, or another stated reserve population.
- Capital scope: drilling/completion only, exploration and development, acquisitions, or a broader capital definition.
- Adjustment policy: whether price revisions, acquisitions, divestitures, and technical revisions are included.
- Period: a single year can be noisy, so multi-year evidence can be more informative when definitions remain consistent.
F&D cost is most useful as a transparent capital-efficiency bridge, not as a stand-alone ranking score.
Sources
- Magnolia Oil & Gas 2025 SEC-filed presentation with an organic proved-developed F&D calculation
- Matador Resources 2025 reserve and future development cost disclosure
- Permian Resources 2025 Form 10-K oil and gas cost disclosure
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