The Miracle of Shale Gas & Tight Oil is Easy Money Part II


  • D

    Great work as always Art,

    One thing I’ve noticed in your economics assumptions is for example in EF calculation you are using opex/boe costs of $12/boe. Are these costs over the full production cycle (i.e. EUR as a divisor) or are these based on current production? To me seems to be the latter, but these costs per barrel will go up significantly as wells age because fixed costs (I’ve seen estimates of $5-15k per month per well) will be divided by fewer barrels.


    • Arthur Berman


      Thanks for your comments. Yes, the variable OPEX costs are based on current data. The way that the economics for shale wells works in fact is that only the first several years matter because that is when most of the reserves are produced and cash flow occurs. If a well does not pay out in the first few years, it will not and the long-term weighting of costs per unit of production makes little difference.

      All the best,


  • Jason

    Great presentation. I happen to be very bullish on oil and gas in the medium to long term however, there are events that can massively impact oil in an upward direction in the short term. Looking at the geopolitical tensions that are arising due to low oil prices (such as civil unrest in places like Saudi Arabia, Venezuela, and many of the “Stan” countries, as well as the inflation issues in Canada) I feel that within the year OPEC could reverse course and cut oil supplies by a couple mmbpd which could send oil prices sky rocketing. How much pain do you think Saudi Arabia and the gulf states can handle before this becomes a possibility?

    • Arthur Berman


      Everyone is losing money at current oil prices–tight oil, oil sands, deep water and most conventional production. The OPEC Gulf States (including Saudi Arabia) have very low full-cycle costs but need much higher oil prices to balance their budgets since they have limited revenue other than oil. These fiscal break-even prices range from $50-100 per barrel according to Bernstein and other credible sources.

      The issues that you raise are complex. I imagine that the OPEC Gulf States could survive reasonably well for several years at very low oil prices on their own but many other OPEC members cannot. I cannot predict how those dynamics will play out but it seems reasonable that the market will on its way to balance later in 2016 or 2017 and then, oil prices should increase independently of OPEC production decisions.

      No one can say what prices will be when balance approaches or returns but it must eventually move high enough to cover the production costs needed to meet global consumption. That means at least $50 per barrel for the lower-cost producers.

      Thanks for your comments and questions,


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