When the price of oil started falling, everybody wanted to know what the breakeven price was in US shale plays; there seemed to be a general consensus that if you said $70, you’d sound reasonably intelligent. More recently, my colleague Carin Dehne Kiley of S&P Ratings wrote a thorough analysis that said when you figure in natural gas value and average interest expense, the “required wellhead oil price” was $55.
There’s been plenty of coverage of how the industry got those numbers down. Some were cyclical and reversible: operating costs dropped as energy costs dropped. Service costs fell also. But Carin’s estimate was that 25% of the drop was sticky, and wouldn’t reverse itself just with higher prices. In an interview I did with Continental Resources CEO Harold Hamm at the Platts Global Energy Forum in early December, Hamm said that sticky figure is probably closer to 50%. Those more permanent changes include workforce reductions, drilling more wells from the same pad, drilling longer laterals and so on.