The profitability of some U.S. shale wells at current prices will almost double as cost cutting and technology turns them into cash gushers despite oil’s crash.
A report by Citigroup Inc. highlights what companies such as EOG Resources Inc. have been saying for months: that belt-tightening across the industry and more strategic drilling in prolific areas would deliver ample profits even at $50 crude.
The improvement is driven by costs that are expected to fall by 20 to 30 percent and techniques that allow rigs to wring 30 percent more oil or natural gas from each well compared with a year ago, according to the Citigroup report on Wednesday. That might bring some surprises when shale producers begin reporting first-quarter financial results over the next two weeks.
While investors are braced for widespread losses, the numbers may not be as bad as some expect, said Richard Morse, the lead author of the study. “Shale producers were hit by low prices in 2014, but they’re hitting back,” he said in the report.
The progress comes at a crucial time for the industry. While the number of drilling rigs has been cut in half and U.S. government forecasters say production in shale formations will fall next month, Saudi Arabia and its OPEC allies have dramatically increased production.
Output from the Organization of Petroleum Exporting Countries rose 890,000 barrels a day to 31.02 million in March, the biggest gain since June 2011, the Paris-based International Energy Agency said Wednesday. Such a production increase could mute the impact on prices of a U.S. pullback.Read more by clicking here.
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