The lowest crude prices since 2009 so far have not been enough to end the U.S. energy renaissance.
Some parts of North Dakota's Bakken shale play are profitable at less than $30 a barrel as companies tap bigger wells and benefit from lower drilling costs, according to a Bloomberg Intelligence analysis. The break-even price is less than half the level of some estimates when the oil rout began last year.
The lower bar for profitability is one reason why U.S. oil production has remained near a 40-year high even as crude prices fell more than 50 percent in the past year to the lowest level since March 2009.
"One of the explanations for why production hasn't fallen off is that the cost has gone down so much," said David Hackett, president of Stillwater Associates LLC, an energy consulting firm in Irvine, Calif. "The marginal cost to produce has shrunk pretty dramatically with the drop in prices. The efficient drillers are now able to take advantage."
West Texas Intermediate crude rose 22 cents, or 0.5 percent, to close Wednesday at $43.30 a barrel on the New York Mercantile Exchange. In North Dakota, where producers have to offer discounts to account for extra transportation costs, the price of Bakken oil dropped to $30.58 on Tuesday, according to Royal Dutch Shell PLC.
The break-even price, based on production rates and drilling, completion and other costs, can vary widely within a petroleum play on the basis of how prolific the geology is and the efficiency of the drilling company, according to Bloomberg Intelligence energy analysts William Foiles and Andrew Cosgrove.
In McKenzie County, N.D., one of the core areas of the Bakken, the median break-even price is a little more than $29 a barrel, Foiles said. That's about a third less than in nearby Williams County, and it's less than half the average break-even price for the Bakken that banks and research firms estimated last fall.
McKenzie County wells have shown the best returns amid the price drop. Drillers had 26 horizontal wells seeking oil in that county last week, the most in the state, according to Baker Hughes Inc.
Bakken oil production in North Dakota has fallen less than 2 percent from its peak in December, while the number of oil rigs in the state has fallen by 60 percent. EOG Resources Inc., the largest shale driller, said it can make a 30 percent after-tax return on $50 oil in its best plays. Whiting Petroleum Corp., the largest Bakken producer, said it is preparing to grow production at $40 to $50 prices.
"A single break-even price doesn't actually exist," Foiles said in a presentation. "Rather, what the model indicates is that at a realized oil price of $29.42, half of wells will generate returns exceeding 10 percent. This price is considerably lower than the $70 break-even estimated by industry watchers at the start of the oil price slump."
Business on 08/13/2015