All major oil basins can break even currently; Marcellus is only gas play breaking even
Project breakevens have fallen below market prices, but generating returns continues to challenge producers, according to new analysis from KLR Group.
John Gerdes, Head of Research at KLR Group, released estimates of breakeven costs for various U.S. unconventional basins today. According to Gerdes, most oil basins are able to break even at current prices, but cannot find significant returns.
While half-cycle returns, well-level economics, often paints a very pretty picture of current activities, full-cycle costs are often significantly higher. A trouble well can easily cost double expectations. Full cycle well costs, then are about 50% higher than standard marketing representations. Well recoveries are also typically below the presented type curve, because essentially every unusual event in a well’s life results in lower production.
These two facts mean industry capital intensity is significantly above well-level assumptions. With this in mind, Gerdes calculated breakeven NYMEX prices for the primary plays in the industry. The Midland basin has the lowest breakeven and lowest price needed for a 10% return. $41 per barrel will generate a 0% unleveraged return, enough to breakeven, while $63 per barrel is enough for a 10% ROR. The Permian, Eagle Ford and Wattenberg all have similar breakeven prices, around $42 per barrel, but vary greatly in price needed for returns.
The Williston has the highest breakeven costs, at $52 per barrel, but the low oil composition of the SCOOP/STACK gives that basin the highest price for 10% ROR.
With current WTI prices around $56.25, all of these basins are able to breakeven. However, 10% rates of return are not achievable.
Gas less economic
Gerdes also analyzed the major gas plays in the U.S., which showed a less rosy picture. Breakevens are lowest in the wet southwestern portion of the Marcellus, which breaks even at $2.95/Mcf. However, this area needs $3.75/Mcf to generate a 10% unleveraged return. Other portions of the Marcellus have breakevens ranging from $3.10/Mcf to $3.25/Mcf, and need significantly higher to generate returns. The Haynesville needs $3.35/Mcf, while the Utica needs $3.50 and the Fayetteville needs $3.65.
Gas prices have ranged between $2.80/Mcf and $3.20/Mcf in recent months, meaning only the Marcellus is breaking even at the moment.
