We are proud to introduce a new shaleism to the United States shale dictionary, hurdle, as in U.S. shale production is now facing increased hurdle rates.

Hurdle(s) can be defined as oil prices, gas prices, domestic energy policy, steel tariffs, falling well productivity, increasing GOR and associated gas as a percentage of the production stream, declining drilling inventory, debt, frac source water, earthquakes, produced water bubbling out of the ground, interest rates... you name it; is been a 440 high hurdle race since 2009, round and round we go. But now at least, we have a name for it.

By shear miracle Rystad has just now apparently discovered some of these hurdles, like interest expense on long term debt and dividend costs and decided to use them in their stupid breakeven metric. I've been using both for the past three years. They've been hurdes for a long time and not including them was deceptive.

You may click to read the article, above.

We have previously posted about Rystad's new breakeven estimates for U.S. shale plays but this graph is just out today and we feel it is newsworthy. I don't agree with its cost categories; for instance I don't know what "wellhead" means, exactly. If its net oil price at the WH... after transportation and marketing, royalty deducts, severance and property taxes and OPEX, including surface and downhole maintenance, I am good with that number. Well, I would actually axe the discounted PV18 deduction and put that $4.50 per incremental BO over in the wellhead category. You cannot BELIEVE what it costs to wash an 18,000 foot lateral out with CT, or replace an ESP. Yikes. People always leave out well intervention costs, as though well maintenace does not count because its not fixed. Pfttttt.

Corporate overhead I am good with. CEO's gotta get paid regardless of falling production. These incremental per BO costs have gone up over the years as production levels have plateaued. I am really good with interest expense on borrowed capital at $3.00 per BO; I have done the math on that. FANG and DVN, just as example, owe $20 B in long term debt, just the two of them.

I am wowed by the dividend expense per incremental BO Rystad comes up with but on a BO basis it looks true using the same two examples, above. Its tricky figuring dividend expense based on shares outstanding, etc. but I think I got it. Rystad is smarter than I am. Why shaleco's are paying the dividends they do I have no clue. I guess that is why they have to borrow money to pay them. Imagine that, for a minute. To create the illusion that you are profitable, you must borrow money to pay dividends to investors.

Only in the U.S. shale sector.

All and all I am really good with the $62 figure Rystad has come up with and nobody is making jack shit right now in the shale oil patch. NOBODY. If Exxon says it is, its lying, and the Department of Energy suggesting shale oil will actually "thrive" at $50 is, well, remarkable. Its the government speaking. Since when does anybody believe it when the government comes calling to say, "hello, I am here to help."

By the way, this breakeven number has nothing to do with drilling and completing new wells, $62 is what it costs to get a gross barrel of oil out of the ground no matter how old the well is.

So, if oil goes to $73, and if a shaleco can make $10 a barrel net back, after all costs, it takes 1,000,000 barrels of oil to payback a $10 million dollar Midland Basin Lo. Spraberry well (https://www.afeleaks.com/p/welcome-to-afe-leaks). Find me 100 of those kinds of wells in that sub-basin drilled in the past 12 years.

By the way this is NOT "all-in" cash flow breakeven. Not by a long shot. Rystad is grossly mistaken about that. The two entities I looked at alone at $20B of long term debt, how is that going to get paid back when you make NO money? How about well retirement costs for 8,000 wells both FANG and Devon have to plug? How do you pay that back when you make no money? There is $140B of long term in the Permian, and it has 62,000 wells to plug and abandoned. Those are both really high hurdles that Rystad ignores.

All in means all in, including closing the doors one day with no liabilities, all your debts paid in full. How come everybody always forgets those costs?

I want you to get smarter than these guys running this shit show. Energy is everything. You gotta vote for folks that tell the truth.