Where have drilling costs dropped the most? Midland Basin, of course

Core acreage breakeven costs in West Texas' Midland Basin, courtesy of Rystad Energy

The costs of producing oil in the major U.S. shale fields have dropped by almost half over the past two years, but none as much as West Texas’ Midland Basin, a part of the prodigious Permian.

Drillers in the Midland, the eastern section of the Permian Basin, used to produce oil for about $71 a barrel, according to a new report by the Norwegian energy research firm Rystad Energy. Last year, that cost dropped by half, to $36 a barrel.

More than half of that savings — 57 percent — comes from lower drilling prices, as operators have squeezed oil field service companies during the two-year-old oil-price crash, Rystad said. Efficiency improvements have cut another one-quarter of the costs.

And the last one-fifth come from a practice known as “high-grading,” when oil companies move drilling operations to their best land.

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Essentially, as oil prices crashed in 2014, companies stopped drilling. When they restarted, they picked spots with the most oil, where they knew they’d get their best returns — what they call “core” acreage.

In 2014, according to Rystad, companies drilled in core acreage about 60 percent of the time.

Last year? 80 percent.

Moreover, as companies moved into core acreage, wellhead breakeven prices dropped.

via Fuel Fix

Categories: Energy