Friday, June 23, 2017

Oil companies have cut costs and can now profit at lower prices

See Three Years On, Oil Industry Comes to Terms With Cheap Crude: Companies drive down costs, scale back projects and tackle spendthrift culture; ‘lower for longer’ is the new mantra by Georgi Kantchev,Sarah Kent and Erin Ailworth of the WSJ. Excerpts:
"The price of Brent crude, the international benchmark, is down 59% since it hit a closing high of $115.06 a barrel three years ago on Monday. West Texas Intermediate, the U.S. gauge, also is 59% lower than the $107.26 high it hit a day later.

The steep fall sparked a slump in oil company profits, recessions from Russia to Venezuela, and huge job cuts across the world’s oil fields.

But now, petrostates, investors and major oil companies are adapting to a world in which they see a range of $50 to $60 a barrel as the new equilibrium. The industry has had little choice but to accept the new reality after the Organization of the Petroleum Exporting Countries and other big producers failed to lift oil prices by capping their production, most recently at a meeting in late May."

"Shale producers operating in a number of fields can break even at $50 to $60 oil today"

"There are a handful of companies that have learned to make money on wells at $40 oil."

"U.S. shale drillers persevered by focusing on their best acreage and making technological improvements, such as drilling supersize wells with more sand to gain savings via economies of scale." (that is when companies expand the size of their operation and lower their average total cost because they spread high fixed costs over more units produced)

"Companies have driven down costs by squeezing suppliers and contractors, trimmed less profitable projects and tackled a once spendthrift culture."

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