The Myth Of Cheap Shale Oil


By Nick Cunningham

The breakeven cost of producing oil from U.S. shale is roughly the same as non-shale, despite the tidal wave of investment into the sector.

According to the Federal Reserve Bank of Dallas, the breakeven prices for producing oil in the Delaware Basin is $49 per barrel and $48 per barrel in the Midland Basin, both of which are in the Permian. Meanwhile, what the Dallas Fed classifies as “other U.S. nonshale” has a breakeven of $49 per barrel. So, despite all the hype, shale is not more competitive on a cost basis than conventional and offshore production.

Notably, the breakeven price for the Permian outside of the Midland and Delaware basins is $54 per barrel on average. The Eagle Ford sits at $51, and the SCOOP/STACK in Oklahoma at $53.

To be sure, the Dallas Fed notes that these are high-level numbers and don’t account for the enormous amount of variation. The best acreage in the Permian has breakeven prices that are “routinely lower on average than other locations.” Bloomberg New Energy Finance says that breakeven prices in the Permian range from $46 per barrel in Loving County but shoot up to as high as $87 per barrel in Reagan County.

Also, there breakeven prices vary quite a bit between companies, even within the same basic location. “[W]ithin the Permian Basin, for example, individual responses to the most recent survey ranged from $23 to $70,” the Dallas Fed noted.

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