The plunge in oil prices is putting even the Permian Basin under water

The plunge in U.S. oil prices has wells in some parts of the Permian Basin below break-even levels, threatening to put the brakes on the record flow from the prolific field.

Oil produced from the Permian in Midland, Texas, is now trading below US$40 a barrel for the first time since August 2016, according to data compiled by Bloomberg, as West Texas Intermediate futures dropped more than 6 per cent Tuesday.

U.S. oil production is set to rise by 1.18 million barrels a day to 12.06 million next year, according to a U.S. government forecast, with Permian growth expected to lead the way. While U.S. shale producers could make money at US$50 oil, industry analysts say, sub $40 oil may be a different story.

Breakevens for new wells among various counties in the Spraberry area currently average between US$32 to $47 a barrel, according to Bloomberg NEF data. Even then, much depends on performance of the well. In Upton County, for example, top-quartile of wells make money at US$31 a barrel, while the bottom quartile need US$65.54 a barrel.

Outside of the Permian, things are even more stark.

“BNEF’s break-even model calculates that an average Permian well can produce oil for under US$50 a barrel, but only the top performers in the Denver-Julesburg or Bakken can match that,” BNEF analyst Tai Liu said Friday in a research note.

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