Oct 30, 2017

Cost of shale projects drops significantly from 2013

Ben Geman, author of Generate

The World Bank released their big commodity markets outlook late last week, which shows how the average per-barrel cost for U.S. shale projects to be economic has come down a lot.

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Data: World Bank, Commodity Markets Outlook, October 2017, Rystad Energy NASWellCube Premium; Note: Breakeven price is based on wellhead costs and does not include test activity; Chart: Andrew Witherspoon / Axios

The lower break-even costs stem from a suite of factors, like technological improvements to how much service companies charge, which fell when oil prices tumbled.

Why it matters: That steep downward slope is one reason why U.S. drillers, especially in the Permian Basin, has become a persistently strong competitor to Saudi Arabia and other big producers.

  • In addition, the attractive economics of shale could sap industry interest in developing Arctic offshore and onshore regions that the Trump administration wants to make available — regions with potentially vast resources but that also require lots of capital to explore and develop.

Yes, but: "While shale companies are expected to continue to achieve efficiency gains, they are starting to face cost inflation for some inputs, especially skilled labor," the World Bank notes.

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