Comparative Break-Even Price Analysis between the Eagle Ford and Permian Basins
The year 2024 has been marked by significant volatility in oil prices. West Texas Intermediate (WTI) crude oil began the year at $70 per barrel, surged to a high of $87 per barrel in April, and reached a local high of $84 per barrel in July. However, recent months have seen a decline to a low of $66 per barrel amid growing concerns of weak demand. OPEC has revised and reduced demand forecasts and has responded to falling prices by delaying planned production increases in an effort to stabilize the market. As prices fall, concerns grow over potential impacts to oil and gas activity.
TGS Well Economics Data from within the Well Data Analytics application enables us to perform a comparative economic analysis of three of the most prolific shale plays in the US. Figure 1 shows the break-even prices of the Delaware Basin, Midland Basin, and Eagle Ford at $56.26, $66.28, and $66.35 per barrel, respectively.
Figure 1. Map showing break-even prices of Midland, Delaware, and Eagle Ford regions.
Looking at break-even prices enables us to evaluate the minimum price that operators can continue drilling and completing wells, without incurring a loss. Break-even prices vary across basins, and are influenced by several factors, including variable costs like lease operating expenses and gas processing and transportation, fixed operational costs, severance and ad-valorem taxes, drilling and completion costs, and well productivity. According to the Dallas Fed Energy Survey, conducted in March, large operators require an average of $58 per barrel to profitably drill, while smaller firms may require $67 per barrel. This statement highlights the efficiencies that can be achieved as a result of merger and acquisition deals occurring in the industry.
Figure 2. Bar chart showing break-even price factors by region.
Figure 2 provides a breakdown of several factors that contribute to the final break-even price in the TGS Well Economics model. We can see that the Delaware Basin has the lowest break-even price, with a higher break-even price for the Eagle Ford and Midland Basin. Despite having the lowest costs among the evaluated areas, the Eagle Ford’s lower production results in a higher break-even price. Conversely, the Delaware Basin, which boasts the highest production, also has the highest costs across the board. Strong production from the Delaware is ultimately enough to offset the higher costs and bring break-even prices to an average of $56 per barrel. The Midland Basin sits between these two regions both in terms of cost and production, ultimately resulting in a similar break-even price compared to the Eagle Ford.
While price fluctuations have led to cautious production strategies, high production rates and strong revenue generation help mitigate the impact of declining prices, with the Delaware Basin emerging as the most efficient region for drilling. As the industry continues to evolve, the ability to optimize well economics will be critical for navigating the shifting landscape of oil demand and market uncertainty.
TGS Well Data Analytics can quickly and accurately help you perform this type of comparison. For more information on TGS Onshore Products or to schedule a demo of Well Data Analytics, contact us at WDPSales@tgs.com.