The U.S. breakeven point for crude oil production has slipped to $50 a barrel, according to the Federal Reserve Bank of Dallas.
The cost of profitably drilling a shale oil well in the U.S. has fallen to a modern low of $50 per barrel, likely ensuring the growth of the onshore shale industry for years to come, according to the latest survey by the Federal Reserve Bank of Dallas.
Led by surging production and efficiency gains in West Texas’ booming Permian Basin, the average breakeven price of oil has fallen 4 percent – or $2 per barrel – during the past year down to the $50 threshold, the Dallas Fed said.
The rising production from increasing shale plays and cost reductions should also stop crude oil prices from rising too high, keeping crude oil prices trading in a narrow range for the foreseeable future.The U.S. oil benchmark is currently hovering near $63 per barrel.
Anything above $60 is considered relatively healthy for the industry, although most energy companies would still prefer higher pricing.
That same breakeven price was closer to $75 a barrel back in 2014 when oil prices last exceeded $100 per barrel.
There are only about half of the oil drilling rigs in service from the fall 2014 peak – just before the most recent oil crash. However, rigs today are able to drill more wells from single sites than before and to deeper depths to produce more oil and gas. That’s largely why the U.S. is producing record volumes of crude oil and natural gas.
“Horizontal drilling and hydraulic fracturing have made accessible significant amounts of oil reserves previously considered uneconomical to develop,” the Dallas Fed report contended. “Moreover, production costs for those reserves have declined dramatically over the past 10 years.”
RELATED: U.S. oil output still expected to hit 13M barrels daily by end of ’19
“As a result, larger quantities of oil are economical to produce at much lower prices than would have been possible before,” the report concluded.
Geography plays a key role. The sweet spot areas of the Permian in its Delaware and Midland basins are both showing breakeven prices closer to $48 per barrel, while South Texas’ Eagle Ford shale averages about $51 per barrel. The prime oil acreage in Oklahoma is higher still at an average of $53 per barrel.
The Dallas Fed cited in an example in Bloomberg New Energy Finance’s breakeven prices in the Permian, ranging from $46 per barrel in Texas’ Loving County to a high of $87 per barrel in Reagan County. Loving is west of Midland along the New Mexico border in the heart of the Permian’s booming Delaware Basin. Reagan is southeast of Midland more along the Permian’s less prolific periphery.
Essentially, the quality of the shale rock in Loving County offers greater oil volumes at lower costs.
Photo as published on Chron: Courtesy Phtoo / Double Eagle Energy Holdings III
