Texas Shale Drillers Make Profits Thanks to Cost Cuts

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Wood Mackenzie, an energy research group, reports that the persistent cost-cutting that dismissed a third of the Texas petroleum workforce over the last two years has taken the cost of pumping shale oil down to $41 a barrel.

In a report Wednesday, the Houston-based Wood Mackenzie said that the energy industry’s leaner build after the slump has given drillers enough financial leeway to push cash back into 70 percent of the U.S. shale plays and conventional oil fields with $60 per barrel pricing. Two years ago, it was only 50 percent.

To put it plainly, the oil market downturn that made more than 80 Texas energy producers and oil-equipment suppliers bankrupt has also fixed high-cost inflation, one of the energy industry’s biggest issues.
An analyst at Wood Mackenzie, R.T. Dukes said, “Costs had gotten pretty astronomical. In a high-price world, you really seek out production at all costs. When prices are low, you focus on costs.”

On average, oil production costs have reached $51 per barrel worldwide, a drop of $19 per barrel. For now, the industry has brought production costs down to levels last seen in 2009. At this rate, drillers could turn over profits extracting 9 million barrels per day over the next ten years. This would mark a 20 percent rise from the era of $100 oil.

Oil companies in West Texas just might make money in the Bone Spring and Wolfcamp tight oil plays at $37 per barrel. South Texas rivals Eagle Ford Shale could make a profit with $48 per barrel. North Dakota’s Bakken Shale is seeing an average $58 per barrel. Wood Mackenzie reports $35 per barrel pricing in Oklahoma’s Scoop area.

A good deal of the cost savings could vanish if crude prices make a huge recovery. According to Wood Mackenzie, 30 to 50 percent of the efficiency gains could become a long-term facet of the oil industry’s cost structure. Meanwhile, the remainder of the costs could return when energy prices improve as oil field service businesses rehire workers and increase equipment prices once more.

Dukes was also quoted as saying, “The longer the downturn lasts, the bigger that number gets because the industry has had more time to find those efficiencies and innovate.”

Article written by HEI contributor Briana Steptoe.

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