No sign of significant oil production shut-ins at $35/bbl: Wood Mac

2/5/2016

EDINBURGH -- Wood Mackenzie's latest global oil production analysis indicates that 3.4 MMbpd of production is cash negative at a Brent oil price of $35. Since the dramatic drop in prices from late 2014, there have been few halts in production—with around 100,000 bpd shut-in globally to date.

According to Wood Mackenzie, the areas with the largest volumes shut-in so far have been Canada onshore and oil sands, conventional U.S. onshore projects and aging UK North Sea fields. However, Wood Mackenzie cautions that the number of shut-ins is unlikely to increase at the rate some might expect, as many producers hold out in the hope of a price rebound.  

"Our latest 2016 production data indicates that with Brent crude oil prices at $35/bbl 3.4 MMbpd of oil production is cash negative, which equates to 3.5% of global supply," Stewart Williams, V.P. of upstream research at Wood Mackenzie, explained. 

Wood Mackenzie's study collates oil production data from over 10,000 fields and calculates the cash operating costs—identifying the price at which the fields turn cash negative, and the volume of oil production associated with this price level. 

Production shut-ins

"Since the drop in oil prices from late 2014, there have been relatively few production shut-ins with less than 0.1% of global production halted so far—around 100,000 bpd globally," Williams added.

So why aren't producers turning off the taps?

"Being cash negative simply means that production costs are higher than the price that the producer receives and does not necessarily mean that production will be halted altogether. Curtailed budgets have slowed investment which will reduce future volumes, but there is little evidence of production shut-ins for economic reasons," Robert Plummer, V.P. of investment research at Wood Mackenzie, explained. 

"Given the cost of restarting production, many producers will continue to take the loss in the hope of a rebound in prices. In terms of our current oil price forecast, we have recently revised our annual average to $41/bbl for Brent in 2016. The operator's first response is usually to store production in the hope that the oil can be sold when the price recovers. For others the decision to halt production is more complex and we expect that volumes are more likely to be impacted where mechanical or maintenance issues arise and operators can’t rationalize further investment at current prices," Plummer added. 

Aged fields

The areas hardest hit are Canada onshore and oil sands, conventional U.S. onshore projects and some aging UK North Sea fields. Wood Mackenzie attributes the hit on Canadian production from oil sands and conventional onshore to high costs and distance from market. There have also been production shut-ins from U.S. stripper wells and in the North Sea, where some operators have prematurely ceased production of aged fields.

"At a Brent oil price of $35, Canada has 2.2 MMbpd of production which has a negative cash operating cost—predominantly from oil sands and small producing conventional wells in Alberta and British Colombia. Venezuela is second with 230,000 bpd from its heavy oil fields, followed by the UK with 220,000 bpd," Plummer added. 

"In the past year, we have seen a significant lowering of production costs in the U.S., which has resulted in only 190,000 bopd being cash negative at a Brent price of $35. In fact, the biggest reductions have been from tight oil, the majority of which only becomes cash negative at Brent prices well-below $30/bbl," Williams added in closing.

Related News ///

FROM THE ARCHIVE ///

Comments ///

comments powered by Disqus