Texas Toughness In Oil Patch Shows Why US Still Strong At $30

(Bloomberg) -- Texas has a message for $30 crude doomsayers: Bring it on.

A handful of shale patches in the state, which would be the world’s sixth-largest oil producer if it were a country, are profitable with crude below $30 a barrel, according to an analysis by Bloomberg Intelligence. In the Eagle Ford’s DeWitt County, which produced more than 100,000 barrels a day in November, the average well can be profitable with U.S. benchmark crude at $22.52 a barrel, $4 below the lowest level this year.

Drive 200 miles southwest to Dimmit County, and drillers need $58 oil. The wide range of break-evens, a term for the price at which a well goes from profitable to unprofitable, illustrates one reason why shale production from exploration and production companies has been more resilient than expected, filling storage tanks in the U.S. to levels not seen in 85 years.

“It may be harder to kill many U.S. E&Ps than analysts originally thought,” Bloomberg Intelligence analyst William Foiles said in the presentation. “The wide range of break-evens undermines efforts to come up with a single threshold for U.S. shale producers.”

Since prices started falling in June 2014, U.S. shale drillers have dodged countless death warrants by cutting costs, experimenting with new techniques and technology and boosting output to keep their wells competitive.

Idling Rigs

It hasn’t been pretty. Two out of every three drilling rigs in the U.S. have been idled and scores of roughnecks who worked them laid off. Law firm Haynes and Boone says 42 companies already filed for bankruptcy as of Jan. 6. For the most part, though, it has worked. U.S. output last week was 9.2 million barrels, the highest January level since 1971 and just 5 percent down from last year’s peak.

It’s easier to survive low oil in some places than in others. Bloomberg Intelligence analyzed everything from the average well output to the amount of local school taxes to learn the average break-even cost for drilling in different rock formations in counties across Texas’s two big shale regions, the Eagle Ford in south Texas and the Permian Basin, which contains several shale layers such as the Spraberry and Wolfcamp.


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