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Low oil prices hurting some US shale operations; slumping oil prices putting pressure on drillers

by Nick Cunningham of

The number of active rigs drilling for oil and gas fell by their most in two months, according to the latest data from oil services firm Baker Hughes. There were 19 oil rigs that were removed from operation as of Oct. 17, compared to the prior week. There are now 1,590 active oil rigs, the lowest level in six weeks.

“Unless there’s a significant reversal in oil prices, we’re going to see continued declines in the rig count, especially those drilling for oil,” James Williams, president of WTRG Economics, told Fuel Fix in an interview. “We could easily see the oil rig count down 100 by the end of the year, or more.” Baker Hughes CEO Martin Craighead predicted that US drilling companies could begin to seriously start removing rigs from operation if prices drop to around $75 per barrel. Some of the more expensive shale regions will not be profitable at current prices. For example, the pricey Tuscaloosa shale in Louisiana breaks even at about $92 per barrel. But that also reflects the high costs of starting up a nascent shale region.

Much of the shale basins that are principally responsible for America’s oil production will not feel the effects of low prices as quickly as many are predicting. Better-known shale formations, such as the Eagle Ford in South Texas, can break even at much lower prices. That’s because exploration companies have become familiar with the geology and fine-tuned drilling techniques to specific areas.

Productivity gains have allowed drillers to extract more oil for each rig it has in operation. For example, in North Dakota’s prolific Bakken formation, an average rig is producing more than 530 barrels per day from a new well in October. Less than two years ago, that figure sat at around 300 barrels per day. Extracting more barrels from the same operation improves the economics of drilling, which means shale producers are not as vulnerable to lower prices as they used to be.

Another factor that could insulate US oil production is that companies also factor in sunk costs. That is, if they have already poured in millions of dollars into purchasing land leases and securing permits, throwing in a little extra money to drill the prospect is probably the rational thing to do even at current prices. It is only projects in their infancy that may not be economically feasible.

This should delay the drop in rig count, and delay the drop in overall US oil production. As the Wall Street Journal notes, given these assumptions, US oil production in the Eagle Ford, Bakken, and Permian could actually break even at just $60 per barrel.

Much rides on the decision making of officials in Saudi Arabia. Although exact calculations vary, the world’s only swing producer needs oil prices between $83 and $93 per barrel for its budget to break even. But that may not be as important of a metric as it appears. Saudi Arabia has an enormous stash of foreign exchange, and could run deficits for quite a while without too many problems. With average costs of oil production from wells in the Middle East sitting at only $25 per barrel, the Saudis can clearly wait out US shale if they really want to.

It may actually be Canada’s oil sands that end up being the first victim, the Wall Street Journal reports. Mining, processing, and pumping heavy oil sands from remote positions in Canada are much more costly than conventional oil and even shale oil in the US. While short-term operating costs are only around $40 per barrel, new projects need prices well above $90 per barrel to be in the money.

Rig counts are starting to drop, but due to the long lead time for most oil projects, it could be a while before production begins to decline in a significant way. What happens next will be largely determined by the outcome of the next OPEC meeting in Vienna on Nov. 27, where all eyes will be on Saudi Arabia.




Is this more false stories to try to get the price of oil up to $100+/barrel again?

Rumours are that Russia may cut oil price as low as $60/barrel to increase market share and lower USA's production, at least until the new pipelines to China are in operation.

Oil prices have always been fixed.

It is a major league game


When you look at the middle east getting by with $20 oil in 2000, but needing oil above $80 per barrel by 2010 you have to wonder. They are making much more money, but they are spending much more as well.


I said this many times, when oil drops below the price that is profitable for the frackers, they will produce less and price will rise again. Frackers and the sand tar people (sounds like a rock band) are the ones that need high price. All the drill baby drill people were acting like they were correct (actually the drill baby drill shills on the internet anyway, and FOX etc.)but they don't have a very complex understanding of commodity markets and are the simplest of minds (raised to be good sheep). In all the alternative universes and this one, a natural resource that is made on a 100s of million years time scale cannot go down in price (except by artificial manipulation) if it's consumption grows. It must always go up in price. Now, while we see fluctuations in the time frame that our short attention span brains can comprehend, the long term trend has always been up and always will be as long as we continue to use more.

HarveyD long as we continue to use more and more.........

This trend can change quickly enough. Look at what happened to paper usage, production and price, specially since the arrival of e-books, e-newspapers, e-documents etc etc. Many papper mills have already closed and more will do so in the coming years.

The same thing could and will happen with OIL. We will switch to electricity (BEVs and/or FCEVs) sooner or latter and OIL consumption will drop as paper consumption did. It is unavoidable because the trend has already started and OIL is not an RE source but a source of vicious pollution that we should do away with.

Roger Pham

Good point, Harvey.
The latest info in 2014 shows that utility-scale solar PV now costs $1,800 per kW. The link below projects $1,000 per kW by 2015. In China, solar already costs $780/kw installed.

Electrolyzer now costs $250 per kW, and will come down quickly. If Solar costs $1,000 per kW for 1,600-1,800 hrs per year for 30 years, the H2 will have an amortized cost of ~$1 per kg in solar energy cost alone. If figure in interest payment on loans, perhaps $1.5 per kg of H2. Because electrolyzer costs only 1/4 that of solar PV per kW, and assuming the same 1,800 hrs/ year, will end up costing $0.25 to $0.35 per kg for amortize cost of electrolyzer. Total production cost for solar H2 will only be $1.25-$1.85 per kg (equivalent to a gallon of gasoline). If this will be sold at $3.5-$4.0 per kg, imagine the profit margin!!! Imagine yet further than a FCEV can travel 70 miles per kg of H2, or only 5 cents per mile, in comparison to an ICEV's of fuel of 12-15 cents per mile.

Ok, let's consider the total number of gasoline consumed in the USA in 2013 = 134 billion gallons. When using H2, FCEV consumes 40% the energy per mile as ICEV's, so, 53 billions kg of H2.
53 B x 50kwh/kg = 2,685 B kWh electricity. Divided by 1,600 kWh per kW per year = 1,675 billion watts of solar installation. At $1 per watt, the total investment in solar PV would be $1,675 Billion. If paid over 15 yrs, the principal payment per year would be $111 B, and the combined payment per year with interest would be $150 B. However, the solar PV and H2 facilties will last for 30-50 years, but just consider 30 years: so yearly amortized cost with interest yearly will be only $75 B. Remember this $75 B number in your head as yearly expense in H2 production in quantity to satisfy entire USA consumption equivalent to current gasoline consumption!

134 Billion gallons of Gasoline x $3.5/gal = $470B !!!

If the retail pricing of all these gasoline-equivalent H2 amount will be half of the $470 B total spent on gasoline yearly, $470 / 2 = $235 B, and subtracted from this $75 B for the cost of production of H2, would give $160 B available to cover profits and maintenance cost. A very hefty profit margin, indeed!
So, the future energy companies would stand to benefit much more from the sales of solar H2 than from the sales of gasoline, while the consumers will pay only 1/2 the cost per mile than gasoline, clearly a win-win-win situation, since the environment and GW will benefit greatly!

Large profit potential will give motivation for commercial developments of H2 by the Energy Companies, who have the deepest of pockets now. Money + know-how + political connections = getting the job done = transformation toward the H2 economy.
The people will be motivated to adopt H2 as the next transportation fuel simply because they will pay only 1/2 the cost per mile as gasoline, and do not have to plug in daily like owners of plug-in vehicles (PEV's) have to do!



Large oil compagnies (in Germany) have come to the same conclusion and 4 or 5 of them are investing $$$M o install 400 H2 stations.

The transition from OIL and CPPs to H2 and REs has started in Germany, Japan, South Korea, California and more and more places.

I'm not so sure that end users will pay much less but it could have a major impact on unwanted pollution and GHG.

Eventually, people living in sunny areas may produce enough clean solar electricity and H2 for their own use.


I don't know where Roger keeps getting these wild projections for hydrogen. Methane gives at best 20% of the range per liter as gasoline, in gas form. It will require massive capital conversion in pumps and cars. And what do you think is the most likely source of hydrogen? What what provides the energy to create that hydrogen? -- Methane.

Meanwhile forecasts of the sickliness of fracking are overblown. Oil follows an objective price. When the dollar slides, oil must rise in price. Where the dollar appreciates -- which is where we are looking, given the instability of the Euro and systemic problems in China, not to mention the prospects of rising interest rates (meaning, more competitive opportunities for business equity, more spending of corporate cash hoards) you will see money flow into US energy as opposed to Russia, the Persian Gulf, or even Brazil. New frack startups will be seen even at a significantly lower strike price -- say $75 v. $95/bbl.

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