Any discussion about the outlook for production needs to start with an understanding of the life cycle of an oilfield and the distinction between breakeven and shut-in prices, analyst John Kemp says.
John Kemp is a Reuters market analyst. The views expressed are his own
LONDON, Jan 13 (Reuters) - How low must oil prices fall before production starts to level off and even decline to rebalance the market?
There is no straightforward answer because it depends on so many factors most of which are uncertain or not observable.
These include the depth and duration of price falls; expectations about the extent and timing of any future price recovery; drilling and completion costs; wellhead prices and hedging programmes.
But any discussion about the outlook for production needs to start with an understanding of the lifecycle of an oilfield and the distinction between breakeven and shut-in prices.
Shut-in prices refer to the minimum wellhead price operators need to continue producing from a hole which has already been drilled and completed and is in production.
Prices at the wellhead must be sufficient to cover the ongoing costs of operation and maintenance, including pumping and artificial lift, as well as water, gas and steam flooding and other stimulation measures for older reservoirs.
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