Shale producers driving down the break even point on wells
EOG Resources says it can get “triple-digit” returns at $60 a barrel oil, a sign the company has whittled down drilling costs as it moves rigs to its most profitable spots.I think this is where private companies have an advantage over government-owned energy companies that do not have the same incentive to ensure profitability. If they can make money at $40 a barrel those profits begin to soar at $60 a barrel.
Outlining a new strategy, the Houston oil company said Friday it has pointed its drill bits at its top-shelf locations in South Texas’ Eagle Ford Shale and elsewhere that get a minimum 30 percent return at $40 oil.
“Our shift to premium is permanent and not simply a temporary high-grading process in a low-commodity price environment,” EOG Resources Chief Executive Bill Thomas told investors. “If history is any indication, we will continue to push the oil price needed for triple-digit returns even lower.”
It’s a sharp departure from the wild and woolly wildcatter business model that was once common among U.S. shale drillers in the days of $100 a barrel oil.
The company’s plan is among the industry’s biggest moves to address the widespread problem of low oil-production rates in the once-booming shale plays at the center of the nation’s energy renaissance. Thomas said it’s an effort that “extends our lead as the low-cost horizontal oil producer.”