Low Oil Prices Hurting U.S. Shale Operations

Blouin News Oct 23, 2014
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Slumping oil prices are putting pressure on U.S. drillers. The number of active rigs drilling for oil and gas fell by their most in two months, according to the latest data from oil services firm Baker Hughes. There were 19 oil rigs that were removed from operation as of Oct. 17, compared to the prior week. There are now 1,590 active oil rigs, the lowest level in six weeks.

“Unless there’s a significant reversal in oil prices, we’re going to see continued declines in the rig count, especially those drilling for oil,” James Williams, president of WTRG Economics, told Fuel Fix in an interview. “We could easily see the oil rig count down 100 by the end of the year, or more.”

U.S. drilling companies could begin to seriously start removing rigs from operation if prices drop to around $75 per barrel, predicts Baker Hughes CEO Martin Craighead. Some of the more expensive shale regions will not be profitable at current prices. For example, the pricey Tuscaloosa shale in Louisiana breaks even at about $92 per barrel.

But that also reflects the high costs of starting up a nascent shale region. Much of the shale basins that are principally responsible for America’s oil production will not feel the effects of low prices as quickly as many are predicting. Better-known shale formations, such as the Eagle Ford in South Texas, can break even at much lower prices. That’s because exploration companies have become familiar with the geology and fine-tuned drilling techniques to specific areas.

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