Meet the Frackers
Because of the success of unconventional extraction methods such as fracking, the U.S.’s production level is at a 25-year high. What would the rate of depletion be if fracking were no longer profitable at $70 or $60 per barrel and production had to be halted? There’s no definitive answer to that question because it’s not clear how many companies would be affected and to what extent. But what should be clear is that reserves would begin to shrink and we would go back to the days of an overreliance on foreign oil.
Below are the estimated breakeven points for some of the most important shale plays in the U.S. With crude currently priced at slightly under $80 per barrel, many companies, especially those that practice fracking, are starting to feel the pinch. Each play has its own unique set of challenges, one of the most significant being the region’s geology. As you can imagine, the harder it is to get the crude out of the ground, the costlier it becomes.
Some analysts believe that approximately a third of all U.S. shale oil producers operate in the red when the price per barrel falls below $80. At $70 a barrel, these producers will need to make drastic changes such as production cuts and layoffs. According to energy research firm Wood Mackenzie:
If WTI prices were below $70 for most of 2015, we predict that around 0.6 million b/d [barrels per day] of U.S. tight oil supply growth would be under serious threat by the end of the year—a figure which would continue to increase with low prices.
And if crude were to fall to $60 per barrel? An estimated 80% of U.S. companies that extract tight oil, or shale oil, through fracking would be shut down and all new supply would diminish quickly due to the rapid decline rate.
Already oil producers must contend with the challenge of decreased production. When a well is first drilled, it might begin producing 1,200 barrels a day but, throughout the year, gradually decline between 5 and 20%. By the end of the year, the site is producing only around 100 barrels a day. Oil producers are often able to recoup exploration and production costs in that timeframe, but then it’s necessary to move on to the next drill site.
Unconventional extraction methods accelerate the decline rate. If frackers were forced to halt production now, our reserves would dwindle even more rapidly.