February 13, 2019
Breakeven prices on prime shale acreage over the past two years have generally resided in the range of $30-$40 per barrel WTI, but with the very best performers sneaking in below $20 per barrel, according to Rystad Energy.
“Even at $45 per barrel WTI, 40% of US shale oil projects will still thrive,” said Rystad Energy partner Artem Abramov.
As the oil and gas industry gathers in Houston, Texas for the annual NAPE Summit Week – “where deals happen” – Rystad Energy, the independent energy research and consulting firm headquartered in Norway with offices across the globe, has identified the top US shale performers by basin and acreage.
In our analysis, we looked specifically at all acreage positions with at least 30 horizontal oil completions drilled in 2017-2018 and which have more than three monthly production reports. Acreage for the purpose of this study is defined as a combination of operator and sub-basin. We further looked at median, P25 and P75 WTI breakeven prices, with Figure 1 showing the 50 acreage positions with the lowest median breakeven prices. We use a 10% discount rate in our calculations.
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“Among those 50, even the acreage positions at the low end of the commerciality scale exhibit median WTI breakeven of approximately $46 per barrel, suggesting that a $50 WTI environment will not act as a show-stopper for current US shale oil activity,” Abramov noted.
“The majority of median WTI breakeven prices for acreage positions where activity has already entered into the development phase is concentrated in the $30-$45 per barrel range. Yet some exceptions exist and they are often driven by a combination of excellent operational performance, outstanding acreage quality and unique features related to ownership of mineral rights.”
Turning to the top producers in each of the major US shale basins, an interesting pattern appears.
“It is interesting to see that in many basins, operators that were not viewed as basin masters several years ago have nevertheless managed to complete their way to excellence through high-grading, optimization of well design, cost structure and initiation of a full-scale development program,” Abramov said. “Yet, the lack of Continental Resources, Whiting Petroleum and Hess among the top Bakken performers should not be interpreted as underperformance by the largest players. Large operators frequently continue test programs on the less prospective parts of their acreage even when all sweet spots have been detected. Hence, median breakeven prices for major operators are frequently affected by contributions from non-core parts of the development program.”
“It is interesting to observe some presence of private operators among the top performers. Mewbourne Oil and Endeavor Energy Partners have been able to achieve basin-leading well economics in the Delaware New Mexico and Midland North basins, respectively.”
For shale wells, we monitor two conceptually different sets of breakeven prices: wellhead breakevens and WTI breakevens. The wellhead breakeven price captures drilling and completion costs, lease operating expenses, production taxes and royalties, but it cannot be used to understand the actual commerciality threshold of various basins and acreage positions. The WTI breakeven price, meanwhile, also takes into account transportation costs, price differentials (relative to WTI Nymex) and general & administrative overheads (quoted on a per-boe basis and distributed across all wells). The WTI breakeven price is a more accurate metric if one wishes to assess the actual price level that might affect current shale activity due to operational considerations.
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About Rystad Energy
Rystad Energy is an independent energy research and business intelligence company providing data, tools, analytics and consultancy services to the global energy industry. Our products and services cover energy fundamentals and the global and regional upstream, oilfield services and renewable energy industries, tailored to analysts, managers and executives alike. Rystad Energy’s headquarters are located in Oslo, Norway with offices in London, New York, Houston, Stavanger, Moscow, Rio de Janeiro, Singapore, Bangalore, Tokyo, Sydney and Dubai.