One of the great unknowns facing the U.S. shale industry, and threatening the recurring rumors of its imminent demise, is how it is possible that despite the collapsing number of oil wells, and despite the plunge in crude prices which supposedly are well below all-in shale production costs, does production not only refuse to decline, but in fact has been largely increasing in the past 6 months, with just a modest decline in recent weeks.



The answer may come as a surprise not only to industry pundits, but certainly to Saudi Arabia, whose entire strategy has been to keep pressuring the price of oil low enough for long enough to put as many "marginal producers" in the US shale space out of business as possible.

According to a report by the Bloomberg Intelligence analysts William Foiles and Andrew Cosgrove, Saudi Arabia may have its work cut out for it as it will be far harder to kill many U.S. E&Ps than analysts originally thought.

The reason: a break-even model for the Permian Basin and Eagle Ford shows that oil production across five plays in Texas and New Mexico may remain profitable even when WTI prices fall below $30 a barrel, according to a 55-variable Bloomberg Intelligence model for horizontal oil wells.

Related: Oil Companies Market Caps Crushed By Oil Crash

The Eagle Ford's DeWitt County has the lowest break-even, at $22.52, followed by Reeves County wells targeting the Wolfcamp Formation, at $23.40. The diversity of breakevens highlights the hazard posed by looking for a single number, even within a play.

These counties together produced about 551,000 barrels of liquids a day in October. Taking into account drilled but uncompleted wells boosts the number of potential survivors to 19. The wide range of break-evens undermines efforts to come up with a single threshold for U.S. shale producers.

The full list of breakevens by county is shown below:




To corroborate its model of break-even levels for oil producers in the Permian and Eagle Ford, Bloomberg used a Baker Hughes' horizontal rig counts in the Spraberry play Permian and Eagle Ford. Howard County, Texas, has the lowest average break-even, at a WTI price of $29.19 a barrel. Its rig counts have doubled since oil prices began collapsing in mid-2014. In Midland County, at $30, rig counts are up 56 percent. Counts in Irion and Reagan counties, with two of the highest break-evens targeting the play, have fallen more than 70 percent.



None of this would be feasible if average breakeven prices were anywhere close to the $50-60 assumed by the consensus.

But where Bloomberg's analysis gets outright disturbing, if only for Riyadh, is that once wells are completed, breakeven costs tumble to Saudi-like sub-$20 prices in some countries.

From Bloomberg:

Tapping drilled but uncompleted (DUC) horizontal oil wells drops break-even WTI oil prices to less than $20 a barrel in eight county-play combinations in the Permian and Eagle Ford. The analysis assumes that drilled wells are sunk costs and that drilling constitutes 30% of a well's total cost. The 55-variable model shows that the impact of removing drilling expenses varies significantly by county and play, with break-even reductions ranging from $7.24 to $21.51, or 28% to 42%.

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In the Bakken, about half the wells have been idled over the past year.

However, overall daily production has been increasing.

Saudi, Russia, and Iran are in trouble, as they might all lose the game of chicken at once.

We're able to get it out of the ground for less than $30 bucks.

Shake it up....




Why U.S. Shale Is Not Capitulating Yet

Yesterday, the New York Times had an article on how Williston (ND) is becoming a smaller town. Houses and shops are empty and the bust continues. Local governments have sold bonds to build schools that will close or never open; no idea where the money to pay off these bonds will come from. The state has a budget shortfall of $1 billion.

Sad situation all around.

see: http://www.nytimes.com/2016/02/08/u...ota-now-has-an-emptier-feeling.html?_r=0

It costs the saudis' $ 6.00/ barrel to get it outta the ground.

That may be true, but it costs the Saudi's and the rest of the dune coon's $95/bbl to run their country. They are losing their asses like everybody else right now.