A new report released by Colorado-based IHS Energy suggests that oil production in the United States could come to a screeching halt by the middle of this year. According to the report, growth is still expected in the early months of 2015, but that momentum will begin to level off in the second half of this year amidst prices at lows not seen since the 2008 Great Recession.
The report was based on an IHS study of 39,000 wells with the assumption that West Texas Intermediate (WTI) prices remained below $60 a barrel. At the time of writing this story, WTI crude oil sits at $51.74 a barrel. The study identified a wide range of break-even prices for U.S. crude oil production. In 2014, approximately a quarter of new wells had a breakeven WTI price of $40 or less. Nearly half of new wells in 2014 had a breakeven price of $60 or less. On the other side of the spectrum, nearly 30 percent of new wells had breakeven prices of $81 or higher. The break-even level is the WTI price needed to cover capital and operating costs and generate a 10 percent return.
The study suggests that monthly average U.S. production at the close of 2015 is projected to be about half a million barrels per day above the January 2015 average, but nearly all of that growth will come in the first half of the year. By December 2015, U.S. oil production growth will have been flat for several months, according to the report.
Vice President of IHS Energy Jim Burkhard commented:
“U.S. oil production has been the main engine of global supply growth in recent years. And momentum from strong growth in the second half of 2014 means the impact of lower prices will not immediately drive production lower. But the reality of lower oil prices and less spending on new wells will affect production as 2015 progresses.”
IHS Energy Senior Director and co-author of the report Raoul LeBlanc added that he believes the fate of U.S. oil production growth past 2015 and into 2016 will be shaped by global economic conditions, geopolitics and changes in industry costs, all of which are in a current state of flux.
“So much can happen over the course of a year,” LeBlanc said. “If oil prices remain weak and confidence in future prices remains shaken, U.S. production in 2016 could possibly flatten or even decline. But there is plenty that could happen—a recovery in oil prices, lower upstream costs, and improved well productivity—that would quickly change the calculus of drilling new wells and reinvigorate U.S. production growth.”
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