What is the Breakeven Oil Price in the Eagle Ford? Back to Blog
(eagleford.com) Breakeven oil prices needed in the Eagle Ford can range quite a bit by operator
and by acreage, but we know the price need is much lower than where oil trades today.
There are more rigs actively targeting the play than any other oil and gas development in the
world. A Baker Hughes official recently noted that the breakeven oil price needed in the South
Texas Eagle Ford is somewhere between $50-57 per barrel. Read the full story at
mysa.com The $50-57 number is for liquids-rich areas of the play. We don’t know the answer
in the dry gas areas to the south. Gas prices haven’t reached high enough to entice operators
to target gas alone. Most industry analyst assume it will take $5/mcf natural gas prices before
we see significant exploration in the dry gas window.
Breakeven Economics Are Deceiving:
Breakeven oil prices are the price of oil per barrel needed for an operator to make a reasonable
rate of return for the risk taken. Typically, oil companies make decisions based on a 10-
20% rate of return. It is the bare minimum price a company needs and is NOT necessarily the
floor for what will sustain activity at current levels. The Eagle Ford is the prime example of a
play that can survive at much lower oil prices, but there would not be 200+ rigs running if oil
was $50 per barrel. Yes, operators could make money, but their operating cash flow would be
devastated. US operators are known for pouring capital back into developments and at $50 oil
there would NOT be much cash to invest. Now, don’t get me wrong. The Eagle Ford is a best
in class play. Even if oil prices were to fall, it would still be best in class and would still garner
the lion’s share of capital budgets. Very much like it is today. On the other hand, there are
also sunk costs that have been invested that would make single well economics or breakeven
prices even lower in certain areas. Imagine if you’ve already built the pipelines, processing,
and have an existing well pad. The breakeven economics for that well will be much lower. All
that to say, even if oil dropped below $50 per barrel, you’d still see a few rigs active in South
Texas.