Is the party finally over for the North American oil boom?
IHS bases its report on a study of 39,000 oil wells. It concludes that if prices for benchmark West Texas Intermediate (WTI) crude oil remain below $60 per barrel, month-to-month U.S. oil production could come to a halt in several months' time. As of Tuesday, WTI was hovering well off its recent lows, at around $53 per barrel.
Global oil prices have lost about half their value since last June, thanks in part to production of shale oil and tar sands from fields in the U.S. and Canada. And while that's been great news for consumers, especially when it comes to gasoline prices, it's bitten hard into the profits and operating budgets of U.S. oil producers and other companies that rely on oil production.
According to the IHS study, about one-quarter of the new wells that started up last year had a break-even WTI price -- that is, the price needed to both cover capital and operating costs, while generating a 10 percent return -- of $40 or less. A bit less than half of those new wells, however, had break-even prices of $60 or less, and close to one-third had break-even prices of $81 or higher.
IHS said more wells will be drilled this year, and it expects U.S. oil production to increase again in 2015. But most of that growth will occur by midyear.
The major oil companies are already acknowledging that things are slowing down. On Tuesday, as part of BP's (BP) report of fourth-quarter 2014 results, it announced it was reducing its annual budget for 2015 to $20 billion, down from nearly $23 billion last year.
Speaking during a conference call BP CEO Bob Dudley said the current situation "reminds me a little bit of (the oil price collapse in) 1986 in terms of the potential for this to be an extended downturn."
I think any time the price of oil drops 60 percent it's not a correction," he added, "it's something different."
"U.S. oil production has been the main engine of global supply growth in recent years," Jim Burkhard, an IHS vice president, said in a statement. "And momentum from strong growth in the second half of 2014 means the impact of lower prices will not immediately drive production lower. But the reality of lower oil prices and less spending on new wells will affect production as 2015 progresses."
At the same time, IHS officials say, a lot can occur -- economically, industrially, geopolitically and otherwise -- that could make all these predictions moot.
"If oil prices remain weak and confidence in future prices remains shaken, U.S. production in 2016 could possibly flatten or even decline," said Raoul LeBlanc, IHS Energy senior director, financial markets and co-author of the report.
"But there is plenty that could happen," he continued, "a recovery in oil prices, lower upstream costs and improved well productivity -- that would quickly change the calculus of drilling new wells and reinvigorate U.S. production growth."