U.S. Shale Patch Reduced Breakeven Costs By 20% This Year
Pressured by plunging oil prices and the need to adjust to the lower oil demand, U.S. oil producers have slashed costs and managed to bring down their average breakeven costs by nearly 20 percent to $45 a barrel on average, Bloomberg’s research service, BloombergNEF (BNEF), said on Thursday.
According to BloombergNEF’s estimates, U.S. oil producers have cut their average breakeven costs from an average of $56.50 per barrel last year to $45 a barrel now. Some of the most prolific areas in the U.S. shale patch, such as the core of the Permian and Eagle Ford basins, have even seen breakeven costs dropping to an average of $36.50 per barrel now, from $44 a barrel last year.
All companies, from the smallest driller to the largest corporations, have reduced capital spending this year in response to the collapse in oil prices, and they will continue to show spending discipline next year amid the uncertain recovery of oil demand and oil prices.
Due to the plunge in oil prices and oil demand, U.S. drillers quickly implemented drastic cost cuts. As a result, they improved efficiencies, optimized well and field operations, and renegotiated contracts, BNEF said.
Earlier this month, BNEF said that even though the U.S. shale patch had further reduced its breakevens over the past year, the decline in drilling costs alone may not be sufficient to help producers to lift production after this year’s downturn.
The Third-Quarter Dallas Fed Energy Survey from the end of September showed that most executives from 154 oil and gas firms—66 percent—believe U.S. oil production has already peaked.
Total U.S. crude oil production is set to remain close to its current levels of around 11 million barrels per day (bpd) through the end of 2021, as new drilling activity will not be enough to offset declines from existing wells, the Energy Information Administration (EIA) said last month.