Innovation and efficiency are driving down costs of oil and gas production in the Bakken and the Marcellus.
Bakken shale drillers are benefitting from new efficient drilling practices and could see breakeven prices drop from $70 a barrel to about $58 per barrel. “The major driver of (well cost) reduction has to do with the number of wells drilled from pads,” Wood Mackenzie analyst Jonathan Garret said. “You’re now drilling 3, 4, 12, even 16 wells from a single pad.”
Marcellus shale drillers will benefit more than other natural gas exploration and production companies focused on other shale plays according to a recent report by Moody’s Investor Services. “Technological advancements since the early 2000s have allowed US natural gas producers to reshape the industry largely through the development of the Marcellus,” says Associate Analyst Michael Sabella, the author of the study.
70% of the US oil reserves would remain economical at $75 per barrel according to Wood Mackenzie. “Supply and demand fundamentals and nonmarket dynamics around the globe keep the price environment well above the break-even economics levels of several US tight oil plays,” said Harold York, WoodMac principal downstream research analyst.
Are oil reserve estimates accurate? Some in the industry question the use of an outdated method for estimating oil reserves when it comes to shale plays. “Things could turn out more pessimistic than people project,” said John Lee, a University of Houston engineering professor. “The long-term production of some of those oil-rich wells may be overstated.”