A rebound can be expected for crude oil prices in 2H15. But, if prices do remain lower and fall to $70 for all of 2015, half of proven and probable (2P) remaining US tight oil reserves would be challenged, according to a report by Barclays."Admittedly, cost of supply curves do not tell the whole story about where prices might bottom. At $80/b WTI, we think most producers will sweat it out and achieve their stated production objectives in 2015. But if prices remain at these levels through 2015, it could compromise the significant potential new volumes that are needed to offset declines from existing wells. This new, higher-breakeven volume is small in 2015, but becomes much larger in 2016," Barclays said.

The near-term (6-month) effect would be marginal, but fewer new volumes would be added in 2H15 and in 2016. On a net basis, that implies a reduction to growth of about 100 kb/d for 2015 as a whole.

A growth impact of 100 kb/d is a drop in the bucket in the context of total non-OPEC growth of around 1.5 mb/d. "Thus, we expect downward price pressure to mount unless OPEC supplies less or demand rebounds."

Companies are likely to react very differently regarding their market capitalization, hedge ratio, and ‘oiliness’ of output. We estimate that small and mid-cap E&Ps (accounting for 880 kb/d oil and NGLs) would see earnings cut by 17% in 2015 at $80 and by 25% at $70/b, which would likely lead to a cut to capex and drilling plans in 2015.

Adding production from infill drilling, drilling in new areas, and enhancing recovery rates from existing wells would add output but require different levels of capex. Wells already online would not be affected, the report said.
Source: Barclays