What is the Breakeven Oil Price in the Eagle Ford?

Operators Need $50-60 Per Barrel In The Eagle Ford
Eagle Ford Breakeven Oil Prices

Eagle Ford Oil Prices | Click to Enlarge

Breakeven oil prices needed in the Eagle Ford can range quite a bit by operator and by acreage, but we know the price need is much lower than where oil trades today. There are more rigs actively targeting the play than any other oil and gas development in the world.

A Baker Hughes official recently noted that the breakeven oil price needed in the South Texas Eagle Ford is somewhere between $50-57 per barrel. Read the full story at mysa.com

The $50-57 number is for liquids-rich areas of the play. We don’t know the answer in the dry gas areas to the south. Gas prices haven’t reached high enough to entice operators to target gas alone. Most industry analyst assume it will take $5/mcf natural gas prices before we see significant exploration in the dry gas window.

Breakeven Economics Are Deceiving

Breakeven oil prices are the price of oil per barrel needed for an operator to make a reasonable rate of return for the risk taken.

Typically, oil companies make decisions based on a 10-20% rate of return. It is the bare minimum price a company needs and is NOT necessarily the floor for what will sustain activity at current levels.

The Eagle Ford is the prime example of a play that can survive at much lower oil prices, but there would not be 200+ rigs running if oil was $50 per barrel. Yes, operators could make money, but their operating cash flow would be devastated. US operators are known for pouring capital back into developments and at $50 oil there would NOT be much cash to invest.

Now, don’t get me wrong. The Eagle Ford is a best in class play. Even if oil prices were to fall, it would still be best in class and would still garner the lion’s share of capital budgets. Very much like it is today.

On the other hand, there are also sunk costs that have been invested that would make single well economics or breakeven prices even lower in certain areas. Imagine if you’ve already built the pipelines, processing, and have an existing well pad. The breakeven economics for that well will be much lower. All that to say, even if oil dropped below $50 per barrel, you’d still see a few rigs active in South Texas.

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R.T. Dukes

R.T. Dukes

Managing Editor at EagleFordShale.com
R.T. is the managing editor of EagleFordShale.com. In prior roles, he advised major oil companies on strategy, the macro business environment, and opportunity screening. 2503 Robinhood, Houston, TX, 77005, U.S.A. | Telephone: 832.429.4790

Comments

  1. aeroguy48 says:

    An interesting article from Seeking Alpha. I am curious if the Eagle Ford operators are considering array-fracking between layers of shale, how close is thew Austin chalk to the Eagle ford?. I see the potiential in the Permian basin also. http://seekingalpha.com/article/1248431-bakken-the-downspacing-bounty-and-birth-of-array-fracking?source=kizur

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