From Financial Times on shale production costs:
As oil prices have fallen, the cost of production from US shale has emerged as a critical question for investors.
In a downturn, higher-cost supply is most at risk, and the need for horizontal wells and hydraulic fracturing – “fracking” – in shale reserves means they are more expensive to develop than many oilfields in the Middle East.
If oil prices fall further, however, US production costs are likely to fall too, providing a safety valve to reduce the pressure on producers.
There is no single answer to the break-even price for shale developments: it varies from area to area and well to well.
Even with US crude prices of about $100 a barrel earlier in the year, the small and midsized exploration and production companies that led the US shale revolution were running large cash deficits.
If oil remains at its present level of roughly $82 per barrel, it will put back the point at which they will be able to cover their capital spending from their cash flows.
However, their costs have already fallen sharply, and could fall further. The median North American shale development needs a US crude price of $57 a barrel to break even today, compared with $70 a barrel in the summer of last year, according to IHS, the research company.
EOG Resources, one of the most successful of the shale oil producers, cut its cost per well in the Leonard shale on the border of Texas and New Mexico from $6.9m in 2011 to $5m this year, while raising average production from each well.
Melissa Stark, a managing director at Accenture, the consultancy, says the industry still has a lot of room for improvement.
With more than 18,000 horizontal wells set to be drilled in the US this year, she argues that improving the “manufacturing model” of repeated similar projects could deliver large savings.
Accenture believes the average cost of a US shale well could be cut by up to 40 per cent by better management of factors such as planning, logistics, and relationships with suppliers.
David Vaucher of IHS says that if prices remain at around today’s levels, rates charged to oil producers for fracking and other services are likely to remain about where they are.
http://www.ft.com/intl/cms/s/0/0a25ecf4-5937-11e4-9546-00144feab7de.html
As oil prices have fallen, the cost of production from US shale has emerged as a critical question for investors.
In a downturn, higher-cost supply is most at risk, and the need for horizontal wells and hydraulic fracturing – “fracking” – in shale reserves means they are more expensive to develop than many oilfields in the Middle East.
If oil prices fall further, however, US production costs are likely to fall too, providing a safety valve to reduce the pressure on producers.
There is no single answer to the break-even price for shale developments: it varies from area to area and well to well.
Even with US crude prices of about $100 a barrel earlier in the year, the small and midsized exploration and production companies that led the US shale revolution were running large cash deficits.
If oil remains at its present level of roughly $82 per barrel, it will put back the point at which they will be able to cover their capital spending from their cash flows.
However, their costs have already fallen sharply, and could fall further. The median North American shale development needs a US crude price of $57 a barrel to break even today, compared with $70 a barrel in the summer of last year, according to IHS, the research company.
EOG Resources, one of the most successful of the shale oil producers, cut its cost per well in the Leonard shale on the border of Texas and New Mexico from $6.9m in 2011 to $5m this year, while raising average production from each well.
Melissa Stark, a managing director at Accenture, the consultancy, says the industry still has a lot of room for improvement.
With more than 18,000 horizontal wells set to be drilled in the US this year, she argues that improving the “manufacturing model” of repeated similar projects could deliver large savings.
Accenture believes the average cost of a US shale well could be cut by up to 40 per cent by better management of factors such as planning, logistics, and relationships with suppliers.
David Vaucher of IHS says that if prices remain at around today’s levels, rates charged to oil producers for fracking and other services are likely to remain about where they are.
http://www.ft.com/intl/cms/s/0/0a25ecf4-5937-11e4-9546-00144feab7de.html
