What is the Real Cost of Oil?

Asking what it costs to produce a barrel of oil is rather like asking how long is a piece of string? The answer can be anything you want between $1 and $500. But of course the cost of producing oil in an ideal world should be well below the price of oil, leaving room for taxes and profits. The global oil market sets the price and producers need to adjust and adapt their strategies to maintain costs below prevailing prices from time to time. That is the theory at least.

With Brent trading at about $45 a cost analysis presented by Art Berman suggests that all Middle East OPEC and US shale producers are continuing to trade at a loss (see chart below the fold). Why then are there signs that the frackers are going back to work?

In the last Oil Production Vital Statistics post I said this:

The FT has reported that LTO from The Permian Basin can be produced for $35 to $40 / barrel and The Eagle Ford for $50.

Based on the following chart published in the FT.

Figure 1 A price view of new oil projects from Wood Mackenzie via the Financial Times.

The source is Wood Mackenzie, one would hope it was reliable. But when I sent it to Arthur Berman for comment he got back saying:

The Woodmac break-even prices are Drilling and Completion plus net OPEX. It is not an NPV number and does not account for royalty payments, G&A, interest expenses or income taxes. As a rough guide, add $15 to Woodmac’s numbers and that is what I get using those costs.

And he sent me his analysis based on Rystad Energy and the IMF amongst others. The difference is significant since at $45 / bbl the Wood Mac numbers suggest that frackers can turn a profit in the Permian basin (Mid-continent, Bone Spring and Wolfcamp) that would explain why the drillers and frackers are showing tentative signs of returning to work. While according to Art everyone is still deep in the red. What exactly is going on?

Figure 2 A price view of existing OPEC and unconventional plays from Art Berman based on data from the IMF, Rystad Energy and others.

Before trying to answer that question it is worthwhile dwelling for a moment on what we really mean by the cost of producing oil. For starters Art’s chart shows two completely different types of cost data. For OPEC and other developing countries it is the oil price required to balance fiscal budgets derived from the IMF (Table 6):

These prices are compared with those required by corporations to show a profit in light tight oil (LTO or shale oil) and Canadian oil sands production. In the former case, national governments need to either borrow or raise taxes to cover the shortfall left by the withered oil price. In the latter case companies must borrow more, sell assets or go bust as many have already done. I think this is an interesting and valid comparison since the tectonic struggle over the oil market is between OPEC nations and US LTO corporations. Who can afford to lose the most?

Why have some of the OPEC nations allowed their budgets to become dependent upon such a high oil price? The answer to that is simple. Between 2008 and 2014 the oil price spent most of the time over $100 / bbl and OPEC governments were obliged to share this windfall with their burgeoning populations and often poor citizens. Welfare programs were expanded to consume burgeoning State profits. But reducing welfare in these countries is fraught with danger and could be the stuff of revolution. The numbers in Table 6 do need to be treated with some caution since countries like Bahrain and Yemen are not exclusively dependent upon oil revenues and trying to plug a budget deficit assuming they are will result in an exaggeration of the oil price they require. But it is noteworthy that Yemen has already disintegrated  and Bahrain is never more than a heartbeat away from revolution.

The main observation to make from Art Berman’s compilation is that the cost of producing LTO and oil sands is well below the price required by certain OPEC countries to balance their books. When the oil price gets above $50, as it surely will do, then the LTO drillers and frackers may go back to work in the Permian basin in earnest. It has normally been the case that it is the cost of the marginal barrel that sets the oil price. That is the cost to bring on significant amounts of new supply to maintain market balance. The frackers will want to turn a profit and so it might be that certain Permian LTO plays will set a lid on the oil price at around $60. This will suit Kuwait and will leave the UAE in reasonable shape. But it will not suit countries like Saudi Arabia, Iran or Algeria. It is Algeria I fear for most, with high population, slowly declining production, and mounting debts on Europe’s door step.

$60 will not suit large tranches of the international oil industry that will likely struggle to break even at that price as will the Bakken and Eagle Ford. The international oil companies (IOCs) will learn to live with $60 by closing production that is not profitable at that level, innovating, contracting and delaying expensive deepwater projects. This will eventually lead to a future shortfall in supply and perhaps another oil price spike that will suit all producers. But while the oil price struggle is between the LTO producers and OPEC, the IOCs may emerge as the biggest losers.

Figure 3 US rig count according to Baker Hughes as of 29 July.

So why then are there signs of the frackers going back to work? Well of course they never stopped with 316 oil rigs still working at the low point in drilling this has now increased by 58 to 374 as of 29 July. But why did drilling not stop all together? One reason may be lease commitments where companies have committed to drill so many wells on their property. And another reason may be to preserve the drilling industry so that it survives into the future. And another reason may be to capitalise on reduced costs during the slump in hope that the price will rise someday soon. This I believe is why drilling has now got out of first gear. But this will be a self-destroying activity since turning LTO production around will inevitably kill the price rally that it depends upon. What will come first? A new price spike or a new price slump? – I don’t know!

Shale oil has certainly been a disruptive game changer. Designed to provide cheap home grown energy for the USA, the unintended consequences might be to spread more revolution in the MENA region and OPEC and to mortally wound the IOCs that have been the backbone of the OECD industry for many decades.

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38 Responses to What is the Real Cost of Oil?

  1. Daniel says:

    Excellent analysis, thank you Euan.
    Algeria (unlike Saudi or Kuwait) is also a gas producer with export capacity to Europe and they are working to ~double it in next three years: http://www.platts.com/latest-news/natural-gas/london/algeria-to-boost-gas-transportation-capacity-26512693
    Easy access to cheap credit and low interest rates may be another driving factor for signs of revival in US drilling activity. $15/bbl Art is using may be delayed for some time in future. Relatively small incremental capital required to drill an oil well and start pumping oil; geological risks are low in known sweet spots. But unlike Manifa or Khurais-style megaprojects thousands of new wells are required every year; prod’n decline is over 50% per annum.

  2. Alex says:

    In other words, it’s not just the cost of the oil extraction operations. Just like Shell have to add on the cost of the Geology and exploration department, and the finance department, and the human resources department, and the sports centre near Chiswick….. so the Gulf producers have to add on the costs of their social welfare programs. As long as their oil industry has to support the whole economy, oil is going to be expensive.

    • Aslangeo says:

      A short primer on costs for those who do not work in the industry

      OPEX = operating expenditure

      This is the day to day cost of producing the hydrocarbons, including fluid processing, transportation cost to hub (can be a separate item), wells and facilities maintenance (work-overs), tariffs to third party facilities, facilities leasing, data gathering (production logging, 4D seismic) etc. etc.

      Opex can be fixed (i.e you needs to be spent regardless of production) or variable (associated with production)

      typical range = $5 to $35 per BOE

      As Art Berman pointed out – analysts sometimes wrongly only quote the OPEX as a breakeven price ignoring the other costs

      I would think of this as a “shut in price”, but even this may not be realistic as fixed opex still has to be paid even if there is no production

      CAPEX = Capital expenditure

      This is the cost associated with installing the facilities to enable production. e.g drilling wells, installing pipelines, processing plant etc.

      This only has to be spent once – before production begins, although enhancements ( infill wells, new plant, compressors etc.) will be installed in later phases of field development

      typical range = $10 to $ 30 per BOE


      These are the costs of finding the hydrocarbons, and proving enough reserves to approve a project. This expenditure includes exploration and appraisal (E&A) wells, seismic data, geological studies etc.

      Some exploration expenditure can be capitalised but most is written off, again this is obviously spent before production starts, although current exploration would be funded from present income to provide future revenue

      typical range = $2 to $15 per BOE – highly variable as it depends on exploration success or lack of it

      G&A = general and administrative

      This is the basic costs of doing business , Staff salaries (unless allocated above), overheads (buildings, utilities etc)

      G&A costs for operators are typically about 6-10% of turnover, compared to 40-60% of turnover in a normal business such as a bank or a utility, however this is the one item management in oil companies can control – hence the brutal cuts being experienced by my professional community

      Other costs are financial

      Interest on debt – bonds, loans etc – this can be very significant particularly for smaller companies who borrowed to finance their CAPEX, The LTO focused companies in America are a prime example

      Financial instruments – e.g hedging

      and finally dividends to shareholders – the majors are massive dividend providers and since none are cash-flow positive at $50 Brent they are borrowing or selling assets to pay the dividend – not a sustainable option at a low oil price

      hope this helps

      • oldfossil says:

        Yes it definitely helps. OPEX is the critical number. This can be split into fixed cost and variable cost. As long as your revenue exceeds your variable cost, it’s worthwhile to produce, even if you’re not covering all your fixed costs. Take a self-employed consultant like myself. If someone offers me £20 a day, and I’m sitting at home doing nothing except looking at cat pictures on the internet, it might be worth my while to take the offer. I still have rent to pay, cats to feed, etc. Those are my fixed costs. Deduct my £5 traveling cost to work and back (my variable production cost) and I’m still better off than I would have been. So I would have liked to see the charts above split into fixed and variable costs.

  3. jacobress says:

    “so the Gulf producers have to add on the costs of their social welfare programs”
    The social programs is not a rigid expenditure on which the oil production costs depend. It is flexible and easily adjustable by incremental steps – up or down – according to oil prices. It is a matter of politics, not oil production.

    It is not correct to include this intangible “cost” in a technical, engineering analysis.

    Let sociologists and politic analysts debate the issue of social programs.

  4. Euan,

    Thanks for your fine summary and analysis.

    I will add the following observations about the LTO producers here in the U.S.

    Hedging is largely a failed strategy with the present oil-futures forward curve.

    Those with substantial bank debt are in deep trouble because those are relatively short-term commitments. Even those companies that are well-hedged out to 2018 are under extreme pressure from banks. Some have re-structured their payments but have paid upwards to almost 14% for the privilege.

    Those producers with more high-yield bond debt have more flexibility because of longer term payment schedules. Among those companies, the ones with relatively strong balance sheets and good positions especially in the Permian basin are able to go to the markets with share offerings largely at will and come back with lots of cash on a repeatable basis. Examples include Pioneer, Concho, and Diamondback (please see the graphic in my recent post: http://www.artberman.com/the-price-rally-is-over-capital-drives-the-oil-market-to-low-prices/).

    These along with larger independents and majors–Apache, Chevron, XTO and Anadarko–are responsible for much of the increase in rig count in recent weeks.

    Much of this has to do with companies that have a “growth story.” The Eagle Ford play has little growth potential in core areas. While the Bakken has more core growth potential than the Eagle Ford, costs are higher mostly because of transport ($7/barrel by rail). Permian well density in the Bone Spring play is more than 1200 acres per well and more than 700 acres per well in the Wolfcamp play: http://www.artberman.com/permian-basin-break-even-price-is-61-the-best-of-a-bad-lot/

    It is, therefore, my belief that credit drives U.S. LTO production and this will serve as a potential limit to oil price ceilings as long as the Permian basin is perceived as the marginal barrel.

    All the best,


    • Euan Mearns says:

      Thanks Art, the feeling I got flicking through the IMF tables (that didn’t always make sense) was that most OPEC countries are probably better placed to weather the crash than the LTO producers – esp those in Bakken and eagle Ford. But on the other side of the coin, the LTO companies get solvent first and the pain for OPEC countries may go on for a lot longer.

      Production throughout the rest of the world remains robust. But there are perhaps signs that production is wilting in Asia and Europe.

  5. Javier says:

    I’m not sure of the fairness of comparing country fiscal break-even to company no negative flow price, because the response to the situation is just the opposite as we are seeing.

    If Arabia Saudi has a fiscal break-even of $86 but a cost to produce of $20, its response to the situation is to increase production as much as possible to reduce the fiscal gap, as we are seeing.

    If a company is below its zero cash flow point its response is to reduce production, as the higher the production the fastest it goes bust. Obviously to a certain point because companies also go bust if they reduce too much their activity. This reduction in production from oil companies is also what we are seeing.

    In truth LTO companies, despite this price analysis, have never turned a real profit, not even when the oil was at $100. They have never drilled out of cashflow, but have always required a constant supply of investment and debt to sustain their activity. The oil has been extracted by piling up debt, and in such they can probably be considered a Ponzi scheme. Their business model has not been reproduced elsewhere in the world where other LTO deposits exist. While the small players are going bust, the big players probably believe that they will never have to face that debt, and they are probably right.

    They go back to work not because they are making money at $45, but because when they do that they convince more people to give them money. That is their business model.

    You probably have seen the Debt Mountain graph at Bloomberg:

    • Roger Andrews says:

      If Arabia Saudi has a fiscal break-even of $86 but a cost to produce of $20, its response to the situation is to increase production as much as possible to reduce the fiscal gap, as we are seeing.


      Much as I hesitate to disagree with Art Berman this is why you can’t use fiscal breakeven costs as a measure of production cost. Iran is an example. If its production costs really were $119/bbl it would have made no sense at all for Iran to increase its production by 800,000 bpd since sanctions were lifted.

    • Greg Kaan says:

      Exactly. The price of oil has been driven down by lax monetary policies (quantitative easing, low interest rates, etc) used to prop up junk investment products and hence the companies holding them. Yet another side effect of the GFC and the “too big to fail” mentality.

      The unavoidable correction will see the oil price skyrocket as the currency devaluations become apparent. Someone in an earlier thread asked why money wasn’t used as a measure of EROEI and this current distortion is exactly why.

  6. Leo Smith says:

    First they sent us their oil.
    Then they bought our cities
    Then they sent their surplus peoples to live in them.

  7. Rob says:

    Euan interesting break even point for Europe shallow waters about $70

    Are there many greenfield North Sea UK projects in the pipeline should oil reach
    a certain rate.

    • Euan Mearns says:

      Rob, I know what you are asking but I think the question is not properly formulated. The oil market and projects has proven to be all about momentum and inertia. On the momentum side the UK has a number of new projects coming on – I don’t have the details to hand. But Claire phase II, Lagan, Mariner, Kraken and Golden Eagle spring to mind. On the inertia side, lots of projects will be back on the shelf and it will be years before companies even consider taking them back into planning.

    • George Kaplan says:

      In the UK North Sea the list of potential projects is dwindling. As Euan indicated there was a surge of projects initiated when oil prices were high starting in 2011, and also helped by some tax changes, which are coming on stream now. To his list I’d add Glen Lyon, which has the largest capacity. Discoveries have been getting steadily less number and of poorer quality. Nearly all smaller fields, needing tie-backs for development, I think there is also a tendency for gas to be more prevalent, but don’t have figures to support that. There are about 15 to 20 tie-backs around that get mentioned in company or government presentations, they probably would average 15,000 boepd nameplate capacity, but may have relatively short plateaus. The larger, stand-alone projects are those left over that weren’t considered top prospects with oil at $120. For example Fram, discovered in 1969, a gas cap with oil rim; Rosebank, discovered in 2004 and with some kind of complicated layering in the reservoir (OMV recently sold their stake to Suncor); Bressay, heavy oil discovered in 1976 and with construction recently cancelled by Statoil; Captain, heavy oil with platform already operating but IOR upgrade recently cancelled. For the tie-backs a growing problem may be that delays in development reduce their options, e.g. the target hub may be decommissioned and either not be available or have a reduced lifetime to allow the production of the satellite’s reserves.

  8. pyrrhus says:

    Epic post and comments, thank you Euan! I do wonder where these new investors in LTO are coming from, as banks won’t touch this stuff any more, and Morgan Stanley, etc, are no longer peddling it to individuals. When I worked for an oil major, there was rigorous cost/benefit analysis, so “what is going on here” is a serious question in my mind.

    • Euan Mearns says:

      When I worked for an oil major, there was rigorous cost/benefit analysis, so “what is going on here” is a serious question in my mind.

      I agree! A suicide pact perhaps?

    • RDG says:

      “I do wonder where these new investors in LTO are coming from”

      Its the PigMen (TBTF’s), who else?

      Saudi Aramco becomes controlled by transnational corporate players

      and the 40 million welfare cases get dumped on Europe

  9. Apollo says:

    We worked with Oman until not very long ago and I can assure you they do not need $100 to balance their fiscal budget. True, they run a large deficit right now, but if oil came back to that price the government would get some $15 B in extra revenues – that is over 20% of their GDP. And mind you they also export nat gas and LNG – why would they balance their budget only on oil?

    I do not know how Art Breman came up with those breakeven prices but they all look suspicious (with perhaps the exception of Algeria). Do not go by my word, all these fiscal numbers are available out there for a quick check.

    It is simply silly to think LTO production costs are lower than in the Mid East.

    • Euan Mearns says:

      Art’s numbers come form the IMF. If you look through the document I link to its easy to find lots to not understand.

      It is simply silly to think LTO production costs are lower than in the Mid East.

      Lifting costs in the ME are clearly a lot lower than areas like the N Sea and Bakken. But in trying to work out who is going to blink first I think it is valid to compare corporate LTO with National OPEC.

      Oman missed out on the ME oil bonanza. They have different oil and reservoirs. The oil is heavy, the reservoirs mainly clastic, not carbonate. Oman and PDO have done a great job turning the country’s production around using a range of EOR techniques that are not cheap. Lifting costs in Oman will be way higher that Saudi and UAE. A good analogy is the heavy oil in Wafra (Saudi – Kuwait neutral zone) that has been mothballed with low price.

      • George Kaplan says:

        To be meaningful (and probably legal within SEC rules) the production costs for LTO have to include the drilling costs as the wells have such rapid decline rates. Whereas the costs for marginal oil, i.e. new developments, in OPEC MENA will be very different from lifting costs from mature fields. Kuwait is developing heavy oil fields that cost at least $75,000 per bpd. New Iran fields requiring gas injection, or increasing production from old fields with EOR, might be more than this. The royalty, tax and buy back costs also vary from company to company and country to country. Without knowing exactly what is being included in costs it is difficult to compare like with like.

    • EdithA says:

      These numbers are published by the IMF. Among the BI community they are understood as instruments of political and financial leverage. They do not aim to reflect economic reality.


  10. Michael Jones says:

    I have seen Ambrose Evans-Pritchard in the Telegraph assert that production decline rates for new LTO wells in the US are now only 18% in the first year, when previously they were in the order of 60%. Do you happen to know whether that’s true? Has the cost structure for fracking and the well performance really improved as dramatically as he asserts, or is the lower cost just a reflection of oil services companies having a going out of business sale? Thanks

  11. SE says:

    But why do OPEC countries need to balance their budgets?

    In reality there are only about half a dozen countries in the world who bother to balance their budgets. The US and UK for example function perfectly well with enormous budgetary deficits.

    This whole analysis is based on a flawed assumption that OPEC countries must operate a budgetary surplus, even though this is evidently false.

    If you use the same logic as applied to OPEC countries to the US then you would calculate that the US needs an oil price of about $600/bbl in order to balance their budget. Yet in the analysis US fields are shown to have marginal costs of ~$50.

    This whole rationale of using government deficits to calculate the marginal cost of a barrel is just wrong (in my opinion).

    For a fair comparison stick to asset related costs only.

    • Aslangeo says:

      Countries do not need to balance their budgets in the short term (i.e. revenue=expenditure), The UK and the US have not done this for a generation and Japan has the largest proportional debt burden in world at over 200% of GDP

      the perceived differences are as follows

      a. OECD countries have large domestic or other OECD debt markets, for example most Japanese government debt is owned by private Japanese citizens
      b. OECD debt is often issued in their own currencies – for example UK GILTS are issued in sterling, US treasuries are issued in dollars.
      c. OECD countries generally have a history of paying their debts and associated interest. Western credit agencies have given OECD countries high credit ratings, Chinese credit agencies are a bit more sanguine
      d. Money from non-OECD countries is attracted to perceived stable OECD capital markets – fro example the Chinese purchasing US government bonds

      OPEC countries may find raising money a little harder

      a. Limited local private capital to buy local bonds – tendency for posh locals in developing countries, like my relatives , to put their money in London or Switzerland
      b. Competition for capital from China from western creditors
      c. Poor credit ratings from western agencies, perception of political instability
      d. Possible sanctions. Iran and Russia for example
      e. Perceived desire to protect the country from being indebted to westerners who may use the debt for political leverage
      f. limited local alternative tax base

      I agree that we need to stick to oilfield related costs when discussing investment – but the overall context can set the scene

      OPEC producers need to pay their societies bills and have little alternative revenue sources (as discussed by other commentators). LTO companies also need to pay bills (OPEX, debt interest , G&A)

      • jacobress says:

        “OPEC producers need to pay their societies bills and have little alternative revenue sources”

        Any country can adjust their “societies’ bills” by lowering government expenditure. “Societies’ bills” are not a given, outward imposed and rigid amount. They are unrelated to oil – except that when oil produces a big windfall, you, naturally, increase “societies’ bills”.

  12. SE says:

    Also another very interesting angle to consider the LTO boom is this…

    1. LTO companies are by and large debt fuelled. They have never really returned any notable positive cash flow to investors.

    2. A huge fraction of LTO oil is moved from the oilfields to the refineries on the coast by US rail companies.

    3. US rail companies have made huge profits from moving LTO’s and returned lots of positive cash flow to investors. http://www.bloomberg.com/news/articles/2014-11-10/buffetts-15-billion-from-bnsf-show-railroad-came-cheap

    4. Warren Buffet’s Berkshire bought BNSF outright and within a few years he recouped almost all of his investment via dividends!

    5. After Buffet financed a series of US banking bailouts in 2008/9. Berkshire is still the largest shareholder of Goldman Sachs.

    It’s a rather elaborate model hiding in plain sight, where the banks that Warren Buffett helped bail out went on to finance an LTO boom where most of the positive cashflow from that boom was drained from the value chain by the railroad company which happened to be owned by the same guy who helped save the banks. The LTO companies are left holding the debt.

    These same banks and Buffett are also by far the largest political contributiors to the Democratic Party. The same group of politicians who worked very hard to block Russian and MENA oil and gas from reaching Europe via a series of social uprisings (Arab Spring) and regional wars stretching from Morroco, Tunisia, Libya, Egypt, Syria, Turkey, Ukraine. In fact every country outside Scandanavia that fringes Europe has seen huge upheaval. The LTO/Rail boom was laying the groundwork to expand into a massive export market in Europe.

    I think it’s obvious what is going on. Very powerful people are running a very big racket. But the Saudi’s (who operate the biggest racket on earth) decided to stamp this out. They unleashed holy hell in the intended export market (Europe) and asphyxiated all the revenue.

    Now the LTO/Rail model isn’t quite as profitable, and it broke Europe by trying to expand the venture into exports. But they already made their money and are probably trying to figure out the next $50bn+ squeeze.

    • James says:

      That’s a very astute observation.

    • jacobress says:

      “LTO companies are by and large debt fuelled”

      The whole world is “by and large” debt fueled, especially the US, China and Europe.
      Leave speculations about the world economy alone, that is not a topic for this blog.
      Concentrate on tangible costs of oil production vs. market prices oil.

  13. Wayne Hooper says:

    A bit off topic– but what do you make of this article about battery storage, by Ambrose Evans Pritchard: http://www.telegraph.co.uk/business/2016/08/10/holy-grail-of-energy-policy-in-sight-as-battery-technology-smash/

    • Rob says:

      Off topic maybe but not read an article that made me so angry for a long time

      I’m convinced the telegraph hates any major infrastructure project outside London

      Since there’s going to be no oil projects for the next few years
      new nuclear could much needed work for our unemployed oil and gas Engineers.

      Does anyone know what the significance of Vanadium Redox Flow Batteries is ?

      • ristvan says:

        The very few vanadium redox flow batteries that have been built commercially as subsidized pilot demonstrators are very expensive, have major reliability problems (pump corrosion), and apparently shorter lifetimes than planned due to electrode failure. The California company who built the single DoE subsidized ferric flow chemistry demonstration failed and was liquidated. The grid energy storage situation is very far from solved. Harvard’s organic quinone flow chemistry is a Ph.D thesis with unsolved lifetime problems at lab scale. Essay California Dreaming covers this landscape as of 2014 in ebook Blowing Smoke.

    • Euan Mearns says:

      Thanks for the link Wayne. I sometimes have the feeling i’ve passed into a parallel universe. I must be missing something. But what is so magical about $100,000 per MWh? And…

      The latest refinement is to replace toxic bromine with harmless ferrocyanide


      Consultants Mckinsey estimate that the energy storage market will grow a hundredfold to $90bn a year by 2025.


      Its easy to see why.

      I’m off on holiday Sunday for a week but when I return I will do a post crucifying this Bull Shit if Roger has not already done so.

      Capex for Coire Glas pumped storage was £27 / KWh. To span a wind lull we need 500 GWh of storage in the UK. @ $100/KWh that would cost $500 billion. Hinkley is to cost £18 billion and will last for 60+ years. I wonder how long the ferro cyanide lasts?

  14. R.T. says:

    The Wood Mackenzie breakevens do not include G&A and interest expense, but do include royalties and taxes. G&A and interest expense can be as high as $5-10 per bbl, but for top operators it can be less than $5.

    I’d also highlight that you’re seeing average breakevens. That means some are below and some are higher. An operator in the best portions of those plays will have lower breakevens.

    You are always welcome to contact press@woodmac.com when you have questions related to Wood Mackenzie analysis. They will be able to put you in contact with the appropriate research contact.

    • Euan Mearns says:

      Thanks RT.

      I’d also highlight that you’re seeing average breakevens. That means some are below and some are higher. An operator in the best portions of those plays will have lower breakevens.

      This is an important point that I meant to make in the post but forgot to do so.

  15. Ed says:

    Something fundamental is being missed here in this discussion. If the eroei is greater than 1 then it is profitable to produce oil. End of. Simple.

    What muddies the waters is the introduction of money/debt into the discussion. The effect of debt finance is to time shift profitability/lose and introduce boom/bust cycles in complex, and possibly chaotic, ways.

    There you go; my two pennies worth. There is something deeper that you are all missing.

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