Slowly but surely, the cost of keeping the Great American Shale Boom going has been increasing for the players that lie at the heart of it.
According to the FT’s Ed Crooks, the breakeven oil price needed to keep the most expensive drilling projects going has climbed to $US100. “That is why even with internationally traded Brent crude at about $US110 per barrel — up from about $US20 in the 1990s — this has not been a good time to be an investor in the oil industry.”
BernsteinResearch’s Scott Gruber recently showed how gains in rig efficiency — the amount of wells that can be drilled at a given rig site in a given quarter — appear to have begun plateauing:
And uncertainty at the heart of the shale revolution has caused the rest of the world to approach their own unconventional reserves with caution.
So where is the boom going? The Oxford Institute for Energy Studies’
This new industry has been focused on drilling; the drilling of infill wells is likely to remain the focus for years to come as companies delineate acreage spacing, increasing the longevity of these plays and the span of drilling that may require decades not years. But who can, or will want to, fund the drilling of millions of acres and hundreds of thousands of wells at an ongoing loss? The lifetime capex for just the Appalachian and Permian exceed $US1.5 trillion. After all, the benevolence of the US capital markets cannot last forever for all players, especially the marginal players, regardless of how deep and specialised the US market is. A more realistic outcome is that sections of the industry will have to restructure and focus more rapidly on the most commercially sustainable areas of the plays, perhaps about 40 per cent of the current acreage and resource estimates, possibly yielding a lower production growth in the US than is currently expected, but perhaps a more lasting one. Ironically, this dramatic change may just be what the industry needs to maintain growth. Outside of the US, the revolution is still a distant hope.
Crude was up 0.5% today to a little over $US100.
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