Oil Price Collapse Hurting Some More Than Others
U.S. oil and gas rig counts dropped to their lowest level in over four years, falling by an additional 74 units for the week ending on January 16. The lower count provides fresh evidence that low oil prices are forcing drillers to pare back operations and slash spending.
While that may soon begin to cut into actual production figures, a new Wood Mackenzie report finds a lot of nuance in the oil patch, painting a complex picture of what to expect in 2015. The report identifies several trends beyond the simple narrative that low prices will force a cutback in drilling.
First, Wood Mackenzie estimates that at $40 per barrel, many producing wellscould be shut in. In fact, about 1.5 million barrels per day of production would be “cash negative” – meaning it wouldn’t even make sense to continue pumping at the most marginal wells, which tend to have extremely low-output. These “stripper wells,” which only produce 15 barrels of oil per day or less, have high costs given their level of production.
Related: Oil Industry Withdraws From High Cost Areas
Wells producing such a tiny flow of oil may seem like a nonissue, but withhundreds of thousands of them dotting the country, they collectively account for about one-tenth of the nation’s production. As these wells become unprofitable, production should start declining.
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