Monday, October 28, 2013

The Cost of Drilling

Here is a good article from Bloomberg on drilling in the Permian Basin.  I didn't know that the Permian Basin was the second largest oil field in the world after Saudi Arabia's Ghawar.  Hydraulic fracking and horizontal drilling have opened up the Permian's shale fields.  The new drilling is expensive.

This paragraph provides insight into the drilling costs and oil prices needed to breakeven:
Energy producers on average need oil prices around $96 a barrel to break even on wells drilled in Permian layers known as the Cline Shale and the Northern Mississippian Lime, according to Mike Kelly, an analyst at Global Hunter Securities LLC. That compares to average break-even prices of around $78 a barrel in the Eagle Ford Shale a few hundred miles east of the Permian, and $84 in the Bakken of North Dakota. Some areas of the Permian need a price of just $70-$74, Kelly said.
I wonder if these breakeven costs include the investment loads of oil and gas investment funds that are looking to drill in this area.  I doubt it.

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