The Year in Review
Once it was explained to me the definition of "well head" costs and why corporate overhead was as high as it was in Rystad's estimate of "breakeven" (ug!) the more I recognized how close to the truth it actually is. $62.50 is a good number. To pay back debt and meet plugging liabilities, real life breakeven is over $90.
Whatever price you see on oilprice.com is NOT the price shale oil producers are paid at the well head. Some of the big boys will get a specific lease bonus to, for instance the Energy Transfer posting above, not many, most will get hit with deductions for gravity of the condensate they produce.
If you are looking three years down the road I would not look much further than $60; Mr. Trump is on the same mission he always has been:
Exxon and Chevron might direct its gas volumes thru Henry Hub, for others that are lucky enough to have bought space to deliver to Houston they get paid 75-80% of Houston Ship. Most are sucking air because WaHa is their only hope. Monday the 29th? Negative $4 and Monday night you'll be able to read the back of your credit card at 2 in the morning anywhere in Reeves County.
This fella below is an old hand in the Permian, adjust accordingly:
Nobody makes money drilling tight oil wells in the Permian Basin, or anywhere else, at today's prices. If they say they are, they are lying. Upper management always "makes money," remember that.
Profit is qualitative; are you really profitable if your well has not paid back drilling, completion and M&A costs yet? Is net cash flow really "free" if you are still $15 billion (FANG), or $33 billion in debt (Exxon)? If tight oil is so profitable, why not pay that debt off; the interest expense is staggering?
New Mexico is mostly Federal BLM lands and a 1/16th reduction in royalty burdens (Trump BBB) can amount to $2MM in additional cash flow; New Mexico, Eddy County anyway is making the Permian look better than it is, the Midland Basin, not. If the operator is breaking even, at best, on $11MM CAPEX, what difference is $2MM in additional revenue...over 15 years?
Pressure depletion is real and is only going to get a lot worse, quickly.
What's left of the United States tight oil sector is doing nothing more than burning thru its remaining drilling inventory for the sake of dividends to pissed off shareholders and servicing long term debt.
I quite doubt Joe q public will be funding much p&a activity. If the day comes they need to, where are $ coming from then? No viable energy industry, no viable tax payer either. -4.00$ and here we are crying at .60$. Your orange man may very well want 1950 prices, but it's killing off the ability to supply it. Cheers from Blizzard country.