Until Such Time as...
...I can confirm I've been accepted back into the X community without conditions. Ill be cross posting my X posts back to the blog to ensure the community receives the message.
The ongoing discussion within the oil and gas industry regarding breakeven costs remains both confusing and fundamentally flawed, a topic I explored in my recent Wednesday X post and Monday blog entry.
The central flaw in this narrative lies in the misapplication of historical costs. A recent WorldOil article, for instance, claims that the shale sector has achieved a 60-75% cost reduction, translating to savings of $30-$40 per barrel and purportedly saving consumers $3 to $4 billion per day.
This claim inaccurately conflates historical costs with prospective savings. A capital expenditure of $10 million made three years ago remains a $10 million fact today; it is a cost already incurred. The reported 60-75% reduction in drilling and fracking costs, while a valid figure for a company like Liberty, applies only to future wells, not to the wells already drilled and paid for. Therefore, past operations cannot retroactively claim these percentage-based cost savings.
Furthermore, producers must account for the full cost implications of selling below their actual breakeven point. When a property operates at a loss, those unrepaid costs are added back into the total expenditure that must ultimately be recovered. I assert that my calculated figure of $129 per barrel of oil equivalent (boe) is a more defensible breakeven value than the industry's commonly cited $30-$40 range. At today's price of $61.79, this discrepancy means an additional $67.21 ($129 - $61.79) in cost must be recovered for every barrel produced to truly reach breakeven.
Such claims of financial wonders validate the wisdom of oil and gas investors who abandoned the sector. A decade has passed since then, prompting the question: which is worse—being abandoned by investors, or continuing to promote such fables ten years later?
