Economic Undercurrents

During this morning’s sessions at the E&P Technology Summit downtown the talk was squarely focused on the dramatic rise of North American oil shale plays. But the palpable undercurrent in the room from audience members was all about economic limits.
While the benchmark price of crude oil has fallen below $65 a barrel, prices to acquire all the oil field services and products it takes to ferret out fossil fuels have been pretty sticky although there are some signs the market is softening.
When asked what price of oil Marathon needs to keep current shale projects profitable, Steven Hinchman, Marathon’s executive vice president of technology and services, said $50 to $55 a barrel.
“We had our well costs down to $4.5 million but now, with the increases in the cost of goods and services, it’s more like $5.5 million to $6 million per well,” he said.
Jack Stark, senior vice president of exploration for Continental Resources, said the Bakken Shale in North Dakota and Montana has the potential to triple his company’s reserves. According to Stark, Continental’s wells cost about $5.8 million each, with much of that going to the complex fracturing and completion techniques required to unlock the oil.
“Half the cost of a well is completing it,” he said.
Stark echoed Hinchman’s $50 to $55 a barrel floor for shale plays, but added he thinks going forward Continental will be able to drill for less as the price for oil field services come back in line.
“Drilling costs have gone out of sight in the last year to year-and-a-half, but these prices will have to pull back with oil prices where they are.”

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