The vast majority of US shale oil deposits will continue to be profitable despite the drop in oil prices on the world markets – according to IHS analysts.
According to a report prepared by IHS, about 80 per cent of potential gross US tight-oil capacity additions in 2015 have a break-even price ranging $50-69/bbl and therefore would remain resilient at West Texas Intermediate prices dropped to $70/bbl.
IHS estimates 2015 US tight-oil production growth at about 700,000 b/d at an average 2015 price of $77/bbl. Though this would represent a slowdown from 2014 tight oil-growth of more than 1 million b/d, the amount of growth remains significant, the report said.
“Since 2008 the cumulative growth in US tight-oil production has been 3.5 million b/d—far exceeding supply gains from the rest of the world combined—making tight oil the key driver of global supply growth,” said Jim Burkhard, vice-president, IHS Energy.
The report claims that the fall in crude prices will have a negligible effect on tight-oil production since the highest costs are associated with the initial development phase of a well and therefore “existing wells can remain economical at crude oil prices far below the break-even price for new production.”
Where the influence of the price squeeze will be felt the most is the production growth, because new wells require significant amounts of investment to bring them to production, but increased efficiencies such as improvements in well completion and downspacing, also support the resilience of US production growth at lower prices, the report said.
“Though these are strong reasons to believe in the resilience of tight oil growth, the report acknowledges that the risk of supply growth falling short is much greater now than just a few months ago,” IHS said.
Jim Burkhard also noted, “Expectations of the future—and the trajectory of oil prices—means that prices do not need to fall to the breakeven price before psychology, investment, and thus output, is affected. Lower oil prices bring into question the ongoing extent of one of the most profound developments in the world oil market—the great revival of American production. The ‘tight-oil test’ is under way.”
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