Energy Economy

Oil Drillers See Profits Continuing

If crude oil prices remain above $55 a barrel this year (as they are expected to do), oil exploration and production (E&P) companies operating in U.S. oil fields expect to continue earning nice profits.

For E&P companies to cover operating expenses on existing wells, the price for West Texas Intermediate (WTI) crude oil needs to remain at a level of about $35 a barrel. WTI for May delivery is trading around $64.70 early Thursday afternoon.

To post a profit on a new well, E&P companies need a WTI price of $55 a barrel. The data were reported this morning by the Federal Reserve Bank of Dallas based on a survey of 136 oil and gas firms.

Costs vary by field, with the least expensive region for both existing and new wells being the Midland basin of the Permian Basin that stretches across west Texas and southeastern New Mexico. Existing wells need a crude price of just $25 a barrel to post a profit while new wells need a price of $47 a barrel.

In the Delaware basin of the Permian, existing wells are profitable at $30 a barrel while new wells make a profit at $49 a barrel. In all other Permian regions, existing wells are profitable at $37 a barrel, while new wells don’t turn a profit unless the price is $52.

Existing wells in Oklahoma’s SCOOP/STACK play are profitable at $27 a barrel but new wells need a price of $53 to turn a profit. In the Bakken shale play of North Dakota and Montana, existing wells make a profit at $38 a barrel and new wells need a price of $50 a barrel in order to pay off.

Non-shale plays require the highest prices in order to make a profit: $40 a barrel to make existing wells profitable and $55 a barrel to make money on a new well.

E&P companies are also upbeat about employment: 46% of the firms expect job numbers to remain close to 2017 levels and 51% expect either small (40%) or significant (11%) increases in employees.

See the Dallas Fed website for the complete report.