Trends in US Shale Breakeven Prices

March 9th, 2017 |

Given the current commodity price environment, there has been a recent focus on the economics of US shale production. Understanding the value of acreage in different parts of the country, and determining the price at which producing from a given well economically makes sense, are some of the market’s big questions. In the E&P Positioning Report, BTU Analytics has determined the economics of individual wells, using a myriad of data sets both public and proprietary.  What trends can we observe from changes in US shale breakeven prices over time?

The above image shows the distribution of wellhead breakevens for all horizontal wells drilled in the Midland basin since 2014 based on first production date. Also on the image is the BTU Breakeven Index for the Midland Basin, which is meant to provide a snapshot of trends in breakevens over time. As shown, the BTU Breakeven Index moves with changes in the distribution of well results. In months where there is far more red, indicating a higher percentage of wells breaking even above $50/bbl wellhead, the index mimics the change in average breakeven for that month. As the red portion fades away, say in Jun-2015, the BTU Breakeven Index indicates that breakevens in that month have improved.

Below is the chart showing the index for the different major oil plays, and how their economics stack up.  

Trends in the breakeven indices provide a look at not only current breakeven levels, but also the relative competitiveness of major plays over time.  Back in early 2014, the Midland Basin was one of the least economic places to produce, with an index price of $77/bbl.  By January 2017 the index had fallen $27/bbl to $50/bbl.

Can breakevens continue trending lower as service costs rise?  What are the forces beyond economics that impact drilling, production and price? Click here to learn more about BTU Analytic’s E&P Positioning Report and Upstream Outlook.