Even though the U.S. shale patch has further reduced its break-evens over the past year, the decline in drilling costs alone may not be sufficient to help producers to lift production after this year’s downturn, BloombergNEF (BNEF) said in a new report.

Oil firms in America are currently under pressure from investors to turn in profits and return part of those profits to shareholders, prioritizing value for investors to volumes in production. All companies, from the smallest driller to the largest corporations, have reduced capital spending this year in response to the collapse in oil prices, and they will continue to show discipline in spending next year amid the uncertain recovery of oil demand and oil prices. In addition, the COVID-inflicted crisis accelerated bankruptcies across the U.S. shale patch, with more filings expected in the coming months.

According to BNEF’s report, exploration and production companies operating in the lowest-cost U.S. basin, Delaware in the Permian, can now profitably drill a well at an oil price of $33 a barrel, down from a $40 per barrel break-even last year.

“Contract renegotiations, ongoing efficiency gains and process improvements have allowed the oil industry to slash the cost to drill and complete a well,” the BNEF report said.

WTI Crude prices in the range $35 to $45 next year would keep crude oil production flat in the four major oil plays in the United States, according to the report. 

The Q3 Dallas Energy Survey from end-September showed that most executives from 154 oil and gas firms—66 percent—believe U.S. oil production has peaked.  

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Total U.S. crude oil production is set to remain close to its current levels of around 11 million barrels per day (bpd) through the end of 2021, as new drilling activity will not be enough to offset declines from existing wells, the Energy Information Administration (EIA) said last month. 

By Tsvetana Paraskova for Oilprice.com

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