Call it a victim of its own success.
The American shale oil boom, which is slated to set the U.S. as the world's largest oil producer in 2014, could be laid low by falling oil prices — prices which are falling, in large part, because of the shale oil boom.
Two of the most important U.S. shale basins, Bakken and Permian Basin, have already turned into money-losing projects, Sober Look's Walter Kurtz noted on Saturday, as oil prices plummeted towards $60 per barrel following OPEC deciding against cutting production on Thursday.
(Image source: Citi via Business Insider)
Kurtz cited Scotiabank estimates that pegged the breakeven costs of major U.S. shale plays above the current price of oil:
Based upon an analysis of more than 50 oil plays across Canada and the United States, we estimate that ‘mid-cycle breakeven costs’ in the North Dakota Bakken (1.05 mb/d) are roughly US$69 per barrel and in the Permian Basin in Texas (1.63 mb/d) about US$68. While some producers have hedged forward at higher prices, if WTI oil remains around US$70 for more than six months, it appears likely that drilling activity will slow in more marginal areas of these plays as 2015 unfolds. Funding for independent oil producers will also tighten. However, the ‘liquids-rich’ Eagle Ford (1.45 mb/d) will be little impacted, with breakeven costs averaging only US$50.
North Dakota shale oil may require oil prices above $70 per barrel to make drilling profitable, but oil prices dipped well below that on Friday following OPEC's Thursday announcement, reaching $66 per barrel.
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