Crude Economics
Some Shale Still Profits at $30

Crude prices have dipped to their lowest level in more than six years, with Europe’s Brent trading close to $48 per barrel, and America’s WTI benchmark down under $43. That’s good news for consumers, but oil producers are having to make tough decisions as higher-cost plays become unprofitable. Many, therefore, expected that a bearish crude market might prove fatal to the shale boom; fracking is a relatively expensive process and just a year ago it was generally thought that few wells could operate profitably below $50 per barrel. But as Bloomberg reports, the price plunge has proven to be a galvanizing event for many in the American shale industry, and a number of firms are finding ways to make money:

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. That’s less than half the level of some estimates when the oil rout began last year. […]

In McKenzie County, North Dakota, one of the core areas of the Bakken, the median breakeven 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 breakeven price for the Bakken that banks and research firms estimated last fall.

OPEC hasn’t cut production to stop the price slide the way it might have in the past because it hopes to outlast upstart shale producers in these unfavorable market conditions. It’s a high stakes game of chicken as fracking firms rack up more debt while petrostate budgets run deeper and deeper into the red, and so far those U.S. operators are stubbornly refusing to back down.

Shale drilling is a young industry, and there’s still plenty of fat to trim and processes to refine. For OPEC, this serves as a reminder: you bet against American innovation at your own risk.

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