As oil prices collapsed in recent weeks, the cry went out: Which basins can still make money—a 25% return—at $75 or $80 oil?
In late October, Global Hunter Securities analysts led by senior analyst Mike Kelly, CFA, tackled the question by aggregating the breakeven prices of every exploration and production (E&P) company they cover, organized by the major oil basins.
These include the Eagle Ford, Bakken, Permian, Niobrara, Powder River, Uinta, Utica, Tuscaloosa Marine Shale and Midcontinent basins or plays. The result is the oil price necessary to achieve a 25% project internal rate of return.
The analysts selected that parameter as a solid “corporate breakeven” threshold because “project economics don’t assume acreage or G&A [general and administrative] costs, plus it’s a standard held by a number of strong U.S. independents.”
They reached three main conclusions in their investigation of play breakevens. First, the average oil price needed is $72 per barrel (bbl), assuming $4 gas and development mode economics. Second, there is a “huge range in the breakeven prices” within each play; and third, the difference in average breakevens between the plays is “actually quite small (this surprised us).”
The analysts suggest it is more important to identify E&Ps with core positions in each basin than it is to bet on the basins overall.
Below are graphics showing significant findings from the assessment.
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