The price of oil is rising and a clear signal is that it has not fallen during the autumn. We can expect that it will increase as we move towards summer. The question is how the higher price will affect the fracking industry. An average of the first month’s well productivity in Eagle Ford is 500 barrels per day (b/d) or 15,000 barrels per month. Calculations in our coming book “Our Global Addiction to Oil”, Springer, show that the total production for a well is about 15 times the first month’s production, or 225,000 barrels. At a price of around US$50 per barrel this gives an income of $11.25 million. The landowner receives around 20% or $2.25 million leaving $9 million over. Administration, taxes and operating costs are approximately $18 per barrel or $4 million. The income remaining to cover drilling and completion of the well is $5 million. In September 2014 when the price of oil fell the cost of drilling and completing a well was $7-8 million and so the activity was not profitable. During the period of low prices the technology has advanced somewhat so that drilling and completion is now available for $4-5 million per well. Fracking in the USA is, once again, on the way to being profitable and by summer we can anticipate that the price of oil will rise by $10-20 per barrel. We will soon see the decline in production from fracking begin to level off. There are 5,000 drilled wells that have not yet been fracked so there is also the possibility of a relatively rapid increase in production. For the oil industry, fracking has become a form of “swing production”
(Swedish)
Oljepriset är på väg uppåt och en klar signal är att priset inte minskade under hösten. Vi kan nu förvänta oss att det skall öka fram till sommaren. Frågan är hur det högre priset kommer att påverka fracking. Ett medelvärde på första månadens produktion i Eagle Ford är 500 fat om dagen, eller 15 000 fat i månaden. Beräkningar i vår bok, ”En värld drogad av olja”, visar att totala produktionen för en brunn är runt 15 gånger första månaden, eller 225 000 fat. Med ett pris runt US$50 per fat så ger det en inkomst på 11.25 miljoner dollar. Markägaren skall ha 20% eller 2.25 miljoner dollar. Kvar blir 9 miljoner dollar. Administration, skatt och drift är ungefär 18 dollar per fat, eller 4 miljoner dollar. Kvar för att täcka borrning och färdigställande av brunnen blir 5 miljoner dollar. I september 2014, då oljepriset rasade, var kostnaden för att borra och färdigställa en brunn 7 till 8 miljoner dollar. Verksamheten blev olönsam. Under perioden med lågt pris har tekniken utvecklats och nu kan man få offerter på 4 till 5 miljoner dollar per brunn. Fracking i USA är på väg att bli lönsam igen och fram till sommaren kan vi vänta oss att priset kan öka med 10 till 20 dollar per fat. Vi kommer snart att se att nedgången i produktionen böjar att plana ut. Det finns 5000 borrade brunnar som inte är frackade, så det finns möjlighet att relativt snabbt få igång ny produktion. Fracking har verkligen blivit en ”Swing Producer”.
Lille Mads
January 16, 2017
Ej att förglömma är tillgången på kapital med riskaptit. Fracking-bolagen måste ha in extern finansiering om det ska bli fart på borrandet. En del finansiärer brände sig vid prisraset och bolagen drog på sig skulder vilket borde dämpa uppgången.
Aleklett
January 16, 2017
EIA i USA tror att fracking skall ge 7 Mb/d år 2040. För att det skall bli verklighet krävs det mellan 400000 och 500000 nya brunnar à 5 miljoner dollar. Enorma investeringar.
Norman
January 22, 2017
A large part of the significant reduction of the average cost of US shale oil wells is merely temporary. Much of the cost decline is due to price deflation for oilfield services. Service companies have sold services below their true cost. These price declines are not sustainable over the long term – evidenced by over 108 bankruptcies of oilfield service companies.
Another part of the cost decline is because oil companies have retreated from the most expensive areas.
Over 105 shale oil companies declared bankruptcy because they were unable to pay their debts, but these companies didn’t go out of business – they just reduced their payments on tens of billions of dollars of debt – then they continued to operate. Some companies have even declared bankruptcy twice. So another part of the fall in average cost is due to reduction in debt payments.
Whenever prices rise, shale companies will begin paying higher prices as drilling rates rise toward previous levels, and since US oil and oilfield service companies laid off over 100,000 workers, their labor costs could increase dramatically to rates even higher than before.
Technology and processes did not improve so much in 2 years to cause this entire cost decline as many give the impression. How much of the cost decline is due to each factor is difficult to determine without detailed analysis, and probably requires more data for precise estimates, but it might be possible to make some reasonably accurate estimates based on trends and data available.
It will be interesting to see their average cost per well over the next 4 years – after oil prices have risen – whether they’re able to find financing so easily as the last few years – and how many more companies declare bankruptcy.