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Global oil production cash negative at current prices

3.4 Million barrels per day (b/d) of oil produced globally is produced at cash negative number, according to an analysis by Wood Mackenzie. This has resulted in an unexpectedly low rate of stopped production of less than 100,00 b/d globally. Companies continue to pump oil despite these low rates in hopes oil prices will rebound. Restart costs and covering fixed costs also influence the decision to continue production.

Globally, Brent oil sells for about $35 USD. Each company has its own breakeven points, fixed costs and operating costs, which determine whether a project is profitable or not. In many cases certain wells are not profitable, while others in the same patch are marginally profitable. As seen in the figure below about 75 million b/d are produced at less than $35/bb. Additionally, the costs of shutting down operations that are in the red occasionally costs more than producing at a loss, especially in the short run. In some cases, such as in older patches in the North Sea a cease production would be a permanent decision.

wood mackenzie

Wood Mackenzie analysts believe the shut in rate to be about 100,000 b/d – 0.1% of global production. Significant locations include Canada, largely due to transportation costs at about 30,000 b/d (Note no major oil sands have been shut-in), and the US, although they are expected to be short lived due to the value of keeping a well long-term given short-term costs which may be as little as a few hundred dollars per month.

Locations currently producing in the red are Canada oil sands and small conventional wells at 2.2 million b/d, Venezuela’s heavy oil fields at 230,000 b/d in negative cash flow, the UK with 220,000 b/d and the US producing the 4th largest amount of negative cash 190,000 b/d. To read Wood Mackenzie’s full report, click here.

In related news, Energy loans likely to cause further losses for big banks.

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