U.S. shale oil, which just four years ago was the world’s second most expensive oil resource, is now the second cheapest source of new oil supply globally, just behind the giant onshore oilfields in the Middle East ($42 per bbl. break-even), according to Rystad Energy.

As noted recently by the U.S. Energy Information Administration (EIA), the break-even price for oil in parts of the Permian Basin (the most prolific producer in the U.S.) has fallen below $50 bbl., to $49 in the Delaware Basin and $48 in the Midland Basin. In U.S. shale plays overall, the break-even price in late May varied from $49 to $54 bbl. The fall in break-even prices in the U.S. can be attributed to efficiency gains in two sectors. Decreased costs through pad drilling in which numerous wells can be drilled from one small site, eliminating the need for expensive rig moves and concentrating supply provision, and increased efficiencies in horizontal drilling, multi stage fracturing, and completion technologies have both contributed significantly to lowered costs and increased activity levels in U.S. shale plays, particularly in the Permian Basin.

As a result, U.S. crude production, which started the year at 11.7 million bbls. per day (bpd) according to EIA, has risen to a current high of 12.2 million bpd, with an anticipated rise to 13.4 million bpd by 2020. With oil in the $60-plus range and an average break-even of around $50, the prospects for onshore oil producers are looking bright.

But things may look even brighter offshore. According to Nasdaq, Royal Dutch Shell plc told the Financial Times last fall that the break-even oil price for deepwater drilling had dramatically decreased to $30 bbl. Moreover, a presentation by Ensco clearly showed that the breakeven oil prices for several offshore projects were less than $40 bbl. The prices reflect the utilization of existing infrastructure in deepwater through (relatively) inexpensive tiebacks in addition to low prices for drilling and development due to equipment surpluses that have led to reduced day rates and capital costs.

If falling break-even prices are not enough, the persistent commitment by OPEC to maintain production cuts should sustain the rising price of oil. OPEC, Russia and other non-member producers, an alliance known as OPEC+, agreed to cut output by 1.2 million bpd from Jan. 1 for six months strengthen prices. The group is due to meet in Vienna on June 25-26 for their next oil policy meeting. However, as of May 23, the group was considering moving the date to July 3-4.

Whatever the decision by OPEC and friends, the combination of low break-even prices and increasing oil prices should bode well for the offshore industry, including the workboat fleet.