As oil prices move ever lower, we have assessed at what price the operating cash flow from producing fields becomes negative. This is another measure of the oil price floor which, if reached, could act as a more immediate brake on oil production.
We do not think this floor will necessarily be triggered. However, we have used our Upstream Data Tool to mine our global database of 2,222 oil producing fields (which account for total liquids production of 75 million per day) to assess how much supply would be affected and at what price level.
We conclude that only a Brent price of $40 a barrel or below would see producers shutting-in production at a level where there is a significant reduction in global oil supply.
Cash Cost adjusted to Brent pricing (see Methodology) Excludes gas condensates and associated liquids from gas fields
At $40 Brent, 1.5 million b/d is cash negative with the largest contribution coming from several oil sands projects in Canada, followed by the USA and then Colombia.
However, there is no guarantee that these volumes would be shut-in. Operators may prefer to continue producing oil at a loss rather than stopping production altogether, especially for large projects such as the oil sands and mature fields in the North Sea.
The production most likely to be halted is from US onshore ultra-low output wells. Many produce only a few barrels per day and operating costs vary between $20 and $50. We believe that once the cost of collecting the oil from these wells becomes marginal, shut-ins are likely.
Low oil price: When do production shut-ins start? [Subscription Required]
Find out more
Our new Upstream Data Tool sets the industry standard for upstream oil and gas data and analysis. It gives you access to our entire upstream database online so you can rapidly search, screen and compare growth opportunities around the world.
To discover more, register your interest below and we will contact you.