U.S. shale oil—which just four years ago was the world’s second most expensive oil resource—is now the second cheapest source of new oil supply globally, just behind the giant onshore oil fields in the Middle East, Rystad Energy said on Thursday.
North America’s tight oil has reduced costs over the past four-five years and has proven to be a competitive source of oil supply even when oil prices are not very high, according to the energy research firm.
US oil: second least expensive in the world. In. The. World. But California prefers Saudi oil. Rystad Energy estimates in its latest cost of supply curve update that the average Brent Crude breakeven price for tight oil is now US$46 a barrel, just four dollars above the average $42 per barrel breakeven oil price for the giant onshore fields in Saudi Arabia and other Middle Eastern countries.
I think the biggest story line is the "minimal" difference between breakeven costs.
It would be interesting to see how Rystad determines "breakeven costs" for Saudi Arabia. $42 seems very high for actual production costs for Saudi Arabia (I would have assumed in the $5 to $10 range) and $42 is way to "cheap" for Saudi's budgetary requirements (publicly stated to be around $80).
In the Whiting earnings call, the CEO said the rate of return on "parent-well-uplift" is "infinite." I thought that was hyperbole and at the linked post, I suggested what he might have met.
Having thought about that, technically speaking, he is absolutely correct. The rate of return associated with that well was based on projections and actual production from the well without extra production as a result of the "halo" effect. If one continues to separate all those costs / the rate of return from "halo" production, then, yes, of course, the rate of return is infinite. That production was never anticipated; it was never factored into the original rate of return. The real question, of course, does it "move the needle"?