For The Archives: Why The US Shale Boom Could End Sooner Than Later -- Forbes

Forbes is reporting:

“If OPEC hopes to maintain any semblance of its cartel pricing power now would be the time for its members to boost their oil output, drive prices down, bankrupt marginal American producers and regain market share for the long-term,” says Ed Hirs, a lecturer in energy economics at the University of Houston, and a member of the Yale Graduates In Energy study group.

A long time the MDW presented that as the basis for a poll. That possibility rated very low, if I recall correctly the results of that poll. 

I, too, have never understood the business model in the Bakken:

So how much oil you need to produce in order to cover $4.5 billion, and how much additional cash you’ll have to deploy in drilling costs to get that oil? Here’s some back-of-envelope calculations: First, dilling a well costs about $8.5 million. Each Bakken well will produce a cumulative 500,000 barrels or so over 10 years — about 450,000 after deducting royalty payments to landowners. That works out to drilling costs of roughly $19 per barrel.

Then there’s roughly $5 a bbl in taxes and $3 a bbl for pipelines and infrastructure and a couple bucks for seismic and other overhead, for total costs of about $29 per barrel. Assuming that Statoil can sell its oil for about $75 a barrel (after transportation costs and accounting for differentials to WTI), that leaves about $46 per barrel after all those costs to go towards that $4.5 billion.

All told that works out to roughly 100 million barrels Statoil needs to produce just to break even. And to get those 100 million barrels Statoil will have had to lay out an additional $2.9 billion or so in drilling expenditures. Add it all up and Statoil will have had to lay out about $7.4 billion over five years before they produce enough oil to start making a profit in the Bakken.

My hunch: there are a few data points we are not considering.