Cartoon Of the Week

May 12, 2019

 

 

Folks like Rystad Energy Consultants, a data-sell company, would like to have us believe that  American shale oil is the  second cheapest barrel of oil in the world to produce. It got itself a lot of attention last week, and I am sure some more clients, with this cool article, here.

 

Rystad's statement, however, is also  an Opectical illusion. We can NEVER know really what the definition of "breakeven" means from one analyst to another, whether it entails leasehold and infrastructure facility costs, interest expense on long term debt, if it includes an internal rate of return, etc. etc., who knows?  The breakeven horse dookey never, I assure you, includes the price of oil necessary to pay back long term debt and equity. In reality the American shale oil barrel is now one of the most expensive barrels in the world to produce, as high or higher than the Canadian oil sand barrel.

 

Upstream public and private debt, including gathering and process infrastructure, is a little south of $300 billion dollars. At $60 WTI the American shale oil industry will have to produce MORE oil than it has already produced the past decade (10.2G BO)... just to get itself completely out of debt. In other words, the shale oil phenomena has not even entirely paid for itself yet. The true "breakeven" price for shale oil, now, including the cost of deleveraging legacy debt, is upwards of $70-75 per barrel. 

 

 

 

 

 

 

 

 

 

 

 

 

 

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