• 11 hours Iraq Begins To Rebuild Largest Refinery
  • 15 hours Canadian Producers Struggle To Find Transport Oil Cargo
  • 17 hours Venezuela’s PDVSA Makes $539M Interest Payments On Bonds
  • 18 hours China's CNPC Considers Taking Over South Pars Gas Field
  • 20 hours BP To Invest $200 Million In Solar
  • 21 hours Tesla Opens New Showroom In NYC
  • 22 hours Petrobras CEO Hints At New Partner In Oil-Rich Campos Basin
  • 24 hours Venezuela Sells Oil Refinery Stake To Cuba
  • 1 day Tesla Is “Headed For A Brick Wall”
  • 1 day Norwegian Pension Fund Set to Divest From Oil Sands and Coal Ventures
  • 2 days IEA: “2018 Might Not Be Quite So Happy For OPEC Producers”
  • 2 days Goldman Bullish On Oil Markets
  • 2 days OPEC Member Nigeria To Issue Africa’s First Sovereign Green Bond
  • 2 days Nigeria To Spend $1B Of Oil Money Fighting Boko Haram
  • 2 days Syria Aims To Begin Offshore Gas Exploration In 2019
  • 2 days Australian Watchdog Blocks BP Fuel Station Acquisition
  • 2 days Colombia Boosts Oil & Gas Investment
  • 2 days Environmentalists Rev Up Anti-Keystone XL Angst Amongst Landowners
  • 3 days Venezuelan Default Swap Bonds At 19.25 Cents On The Dollar
  • 3 days Aramco On The Hunt For IPO Global Coordinators
  • 3 days ADNOC Distribution Jumps 16% At Market Debut In UAE
  • 3 days India Feels the Pinch As Oil Prices Rise
  • 3 days Aramco Announces $40 Billion Investment Program
  • 3 days Top Insurer Axa To Exit Oil Sands
  • 4 days API Reports Huge Crude Draw
  • 4 days Venezuela “Can’t Even Write A Check For $21.5M Dollars.”
  • 4 days EIA Lowers 2018 Oil Demand Growth Estimates By 40,000 Bpd
  • 4 days Trump Set To Open Atlantic Coast To Oil, Gas Drilling
  • 4 days Norway’s Oil And Gas Investment To Drop For Fourth Consecutive Year
  • 4 days Saudis Plan To Hike Gasoline Prices By 80% In January
  • 4 days Exxon To Start Reporting On Climate Change Effect
  • 4 days US Geological Survey To Reevaluate Bakken Oil Reserves
  • 5 days Brazil Cuts Local Content Requirements to Attract Oil Investors
  • 5 days Forties Pipeline Could Remain Shuttered For Weeks
  • 5 days Desjardins Ends Energy Loan Moratorium
  • 5 days ADNOC Distribution IPO Valuation Could Be Lesson For Aramco
  • 5 days Russia May Turn To Cryptocurrencies For Oil Trade
  • 5 days Iraq-Iran Oil Swap Deal To Run For 1 Year
  • 7 days Venezuelan Crude Exports To U.S. Fall To 15-year Lows
  • 8 days Mexico Blames Brazil For Failing Auction

Breaking News:

Iraq Begins To Rebuild Largest Refinery

Alt Text

The 'Mega' Oil Field That Will Never Boom

The Chinese Junggar basin in…

Alt Text

The Noose Tightens: Venezuela Struggles To Ship Oil

As production plunges, Venezuela’s PDVSA…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Which Oil Producing Region Loses the Most From Low Prices?

Which Oil Producing Region Loses the Most From Low Prices?

After OPEC’s decision not to adjust its production quota, oil prices dropped to their lowest levels since 2009. Oil executives across the world were surely hoping for a different outcome from the meeting in Vienna. Now with the oil rout on – WTI prices plummeted below $70 per barrel after the announcement – all eyes will be on which producers will begin to feel the pain the most.

Saudi Arabia can weather a price crisis longer than most. It has low costs of production; much lower than most other oil producing regions. And despite the fact that it still needs high prices to balance out its budget, Saudi Arabia has built up a vast reserve of foreign exchange to cover deficits. This at least partially explains their motivation to let the market work itself out.

Public oil companies have investors to deal with, and operating in an unprofitable environment is not really a viable option. So the big question is which regions start to become unprofitable at today’s prices that are now approaching the mid-$60-per-barrel range for WTI.

Related: The US Shale Breakeven Price Debate

One plausible casualty could be Canada’s oil sands. Not only do oil sands companies produce some of the most expensive oil on the planet, they are also selling oil at a discount. The Western Canada Select, an oil sands benchmark, traded at $48.40 on November 28, the lowest in the world according to Bloomberg. The $17.75 per barrel discount is largely due to pipeline constraints, a fact not lost on environmental groups protesting several major proposed pipelines.

On the other hand, unlike shale companies, oil sands producers invest for the long-term. Oil sands projects often are only profitable with oil prices well above $100 per barrel, but they count on steady production for many years. This is a major difference from shale drillers, who see their production fizzle after an initial burst in the first few years. That means that oil sands producers are not as vulnerable to temporary price fluctuations.

Nevertheless, if oil prices remain below $70 per barrel, expensive oil sands will not be sustainable and Canada’s largest oil sands producers will most likely cut spending. A report from the Bank of Nova Scotia says that drilling in Western Canada may fall by 15 percent in 2015.

Another victim of low prices could be U.S. shale. There is a lot of variation between companies and between regions in terms of who can continue to profitably produce oil from U.S. shale. For example, many Bakken producers can turn a profit at just $42 per barrel.

But an estimated 4 percent of U.S. shale production is unprofitable with oil at $80 per barrel. These are places that operate on the margins in high cost environments – places like the Mississippi Lime formation in Oklahoma or the Tuscaloosa Marine Shale in Louisiana. Companies investing in these formations will see losses pile up, and they will be forced out of the market with prices low.

With WTI now dropping through the $70 per barrel threshold, more regions could become unprofitable. Parts of the Permian basin in Western Texas or the Niobrara in Colorado could begin to look less viable.

Related: 5 Reasons The Halliburton-Baker Hughes Deal Is Poisoned

Still, a study from IHS finds that 80 percent of U.S. shale oil production in 2015 could breakeven at prices between $50 and $69 per barrel for WTI. That means that there will still be a lot of projects out there that oil companies will pursue, but with each passing day as oil prices tumble, more and more could be scrapped.

While oil exploration companies are trembling because of low prices, it may actually be the oil field services companies that are first in the line of fire. Unlike oil producers, which can lean on existing production during lean times, service companies like Schlumberger depend on a steady pace of drilling to stay afloat. With oil majors potentially slated to cut back on drilling activity, demand for drilling services and rigs will be the first thing to go. Schlumberger’s shares have dropped 22 percent over the last three months.

Few predicted the price collapse in 2014, so it is anybody’s guess what happens next. However, if prices stay low or drop further, there will be more companies pulling back on drilling, and more of their investors will be clamoring for the exits.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • Max on December 02 2014 said:
    I have long thought that the $100.00 break even point cited for "unconventional" oil from sources such as tar sands and fracking is exaggerated and that true break even price point is, in general, much lower--unless taxes and regulations have recently artificially increased costs. Not two months ago on NPR a reporter was talking to a Shell Oil executive in Alberta who oversaw some aspects of the tar sands fields; after the reported stated that the break even point per barrel for the tar sands oil was $80.00, the executive said that the break even point was actually only $36.00 a barrel. The reporter ended the piece by repeating that $80.00 was the break even point. The $36.00 break even point has been the most common figure used for unconventional oil break even point for the four decades I have been following the topic. It is only in the last couple of years that the break even point jumped to an astounding $100.00. The tar sands have been being developed for many years now--long before $100.00 per barrel prices were ever imagined. I take the Shell executive's figure as authoritative--it matches years of previous reporting and if anyone should know, it should be her!
  • Jesse on December 25 2014 said:
    @Max Break-even costs vary from company to company and from project to project depending on how efficient a company is and how difficult a certain area is to mine...

    The $100/barrel are the most expensive projects from the smallest most inneficient companies. 90% of oil sands projects dont require prices that high. Most larger projects are actually $50 to $60 a barrel

    I think they bring up the highest figures now because low oil prices are a threat to production and production cuts would begin with the highest cost projects. But current prices certainly woukdnt stop the industry as a whole anytime soon
  • Edward Richards on January 07 2015 said:
    Could it be an apples and oranges question - I wonder if the $36 is the price to produce the incremental barrel, but does not include amortizing the capital and maintenance costs?

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News