Even though prices have slumped to their lowest in more than a year, output keeps marching ahead thanks to falling operational costs, increasingly efficient well technology, rising reserve estimates and aggressive forward hedging programs. Experts say the 1 million barrel per day (bpd) mark will probably be reached by early next year. _Bakken Breakeven
Improved technology and streamlined operations are allowing US shale producers to make greater profits on lower oil prices. Bakken oil production is estimated by the USEIA to shoot above 1 million barrels per day next month. Investment in new production continues to come in.
What is the significance of “breakeven oil prices?”
Breakeven oil prices are the price of oil per barrel needed for an operator to make a reasonable rate of return for the risk taken.
Typically, oil companies make decisions based on a 10-20% rate of return. It is the bare minimum price a company needs and is NOT necessarily the floor for what will sustain activity at current levels. _Breakeven Eagle Ford
Eagle Ford shale could support production at prices as low as $50 a barrel, but if low prices persisted there would eventually be a significant drop in new investment and production.
In the Bakken, breakeven oil prices are even lower, with most producers well able to survive prices as low as $40 a barrel.
… formulating a break-even price is no simple matter and analysts differ in their calculations as the more than 100 operators in the Bakken have different costs, access to acreage of varying quality and distinct success rates in producing oil.
…for high-quality parts of the formation such as the Parshall and Sanish fields, that number goes down to the $38-$40 range.
North Dakota’s Department of Mineral Resources bases its break-even estimates on a 10 percent return on investment after tax and royalties, it said. Statewide, that price is $36 and for the four top Bakken oil producing counties it is $40 for Williams, $37 for Mountrail, $26 for McKenzie and $31 for Dunn.
… With savings, improved production rates and hedging, the break-even point is still a way off by most accounts. _Bakken Breakeven
Still, some producers in both Bakken and Eagle Ford would be hurting if prices fell below $60 per barrel. The difference in “breakeven costs” between different producers illustrates the “creative destruction” aspect of capital markets. Just like in biological evolution, it’s a jungle out there.
Investors need to research any specific oil & gas companies and service companies before investing.
Update Oct 2014: North American oil production is just getting started. A little thing like a price slump is not about to poop this party.
Various estimates for US shale breakeven from different analysts Some of these estimates did not take into account newer technologies. As new pipelines are built, breakeven costs will drop.