An oil drilling company operating in the Permian Basin shale formation can extract crude for as little as $2 a barrel, meaning it can compete with Saudi Arabia in terms of production costs.
“Definitely we can compete with anything that Saudi Arabia has,” Scott Sheffield, the CEO of Pioneer Natural Resources told Reuters.
“My firm belief is the Permian is going to be the only driver of long-term oil growth in this country,” he said. “And it’s going to grow on up to about 5 million barrels a day from 2 million barrels,” even with oil at $55 per barrel, according to Reuters.
Saudi Arabia has been able to drive dozens of smaller shale oil companies out of business by keeping the price of oil low, but if more companies can do what Pioneer is able to do, the Saudis may be in big trouble.
Pioeneer reported on its second-quarter results that its production costs fell to $2.25 in West Texas. That’s about even with Saudi Arabia’s low cost oil production. It’s a signal that drillers, at least in the Permian Basin, are adapting to a low-price environment.
“The Bakken and the Eagle Ford I think there’s no way they can recover to the levels that they’ve already had,” Sheffield said, skeptical that other shale plays would see such low costs.
American shale drillers have had to weather oil prices hovering at $50 a barrel or less for the past couple of years. When the shale boom took off, oil prices peaked at more than $100 a barrel by summer 2014.
Some North Dakota drillers can afford to drill at oil prices as low as $40 a barrel, but even so, the oil industry was forced to lay off about 170,000 workers since the price plunge in 2014 —though some economists say oil jobs may return soon.
Pioneer seems to be a step ahead of the game. The company has been able to cut costs by “doing much of its oilfield services work in-house,” according to Reuters, and it “has its own sand mine, and uses effluent water from the city of Odessa for frack jobs using pressurized sand, water and chemicals to unlock oil from rock.”
Posted by The Daily Caller.