Most North America Shale Plays Still Profitable at $65/Barrel
At $65/barrel, most North America shale plays are still profitable with the current rig and well economics on an individual or series basis, according to an industry expert with A.T. Kearney.
The firm doesn’t see any major pullback in activity at this price level, except for companies with stronger balance sheets possibly deferring or slowing programs to take advantage of consolidation opportunities with other players that may have higher debt levels and are looking for merger activity, said Vance Scott, partner and leader of the Americas energy practice at global management and strategy consulting firm A.T. Kearney.
Deeper, more expensive shale plays that have more exotic completion requirements are always going to be more sensitive to commodity pricing, said Scott. Bakken wells tend to be deeper than wells in the Eagle Ford in South Texas; wells in the liquids-portion of the Marcellus also tend to be shallower.
At $100/barrel, all of the North America liquids plays such as the Bakken, Eagle Ford, Niobrara, Marcellus, Utica and the Duvernay are very, very attractive. When the price falls to $80/barrel, some folks say that it starts to hurt economics.
“Fundamentally you have to think about where companies draw cost of capital and the risk they’re willing to take at certain price points,” said Scott.
According to A.T. Kearney’s bottoms-up analysis of well economics in shale basins, on average, the type of decision-making to scale back activity in shale plays doesn’t occur until $62/barrel; even then, hard pullbacks don’t occur to under $60/barrel. In the $50-$55 range, A.T. Kearney sees decisions made on marginal or fringe wells, said Scott. Once prices dip below $50, stronger operators will start to scale back activity.
Scott noted that there are some companies who have likely overleveraged themselves in shale plays, and players with stronger balance sheets currently are high-grading where merger and acquisition opportunities exist.
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