Oil and natural gas industry costs have improved sharply since late 2014, but overall supply costs remain high, suggesting that it’s going to take stronger commodity prices to sustain global operations, BMO Capital Markets analysts said in a new report.

BMO’s annual cost study of 142 global producers implies that the supply cost for crude oil and natural gas on a Brent-equivalent basis decreased 34% in 2015 to $79.86/boe from $120.49/boe in 2014. However, three-year average costs eased a modest 10% to $104.21/boe from $115.90/boe, indicating that Brent crude would need to average more than $100/bbl for industry to generate a 10% return on capital invested over the 2013-2015 period.

Companies with the lowest three-year average boe price requirements in this year’s study included natural gas-weighted EQT Corp., Matador Resources Co., Range Resources Corp., Southwestern Energy Co. and Ultra Petroleum Corp.

“The fact that four natural gas-weighted companies are among the best performers, even though natural gas prices have been weak for some time, highlights the success that the natural gas industry has had in bringing down overall costs” because of sustained lower prices, BMO analysts Randy Ollenberger and Jared Dziuba wrote. “This provides a good indicator of where the oil industry could be headed.”

The current downturn should drive overall supply costs even lower in 2016 toward $70/bbl. However, a global supply cost of $50/bbl “appears unattainable currently.” Overall, global oil supply costs improved by 34% in 2015 to around $82/bbl, while three-year average costs fell 9% to $105. Tight (shale) oil costs declined by 22% to $79/bbl.

However, for natural gas, global supply costs jumped by 26% last year to average $6.47/Mcfe in 2015 from $5.15/Mcfe, and three-year average costs increased 19% to $5.38/Mcfe.

“North American gas, which led the downward trend through 2012, saw three-year costs increase by a more modest 7% to $5/Mcfe, BMO analysts said. “Gas supply costs increased mainly because the market value of associated liquids decreased, thereby requiring a higher market gas price to cover costs.”

For North American shale gas, a “clear” cost structure now is seen under $5/Mcf, as key sources of supply deliver lower costs, particularly in the Marcellus/Utica and Canada’s Montney.

The lowest gas supply costs were reported in the Montney, where three-year costs of $3.78/Mcfe tracked type curve model expectations of $2.88/Mcfe closely, as well as in the Marcellus, where costs averaged $4.72/Mcfe, compared to BMO’s model assumption of $2.85/Mcfe.

For natural gas, 93% of proved reserves worldwide are economic at prices below $6.50/Mcf, but the go-forward cost is entrenched in the $5.00/Mcf range as the 2015 cost curve shows that more than half of reserves generate returns below this level, analysts said.

The influence of shale oil on overall global cost structures still is being tested, according to BMO. All-in reported costs of tight oil producers on average “have not drastically outperformed,” and shale oil “makes up only 5% of global output.”

The lowest three-year shale oil costs were seen in Canada’s Cardium and Viking plays, followed by the Permian Basin. BMO estimated that the Permian’s Delaware and Midland sub-basins now hold the lowest model breakevens among U.S. plays at $42-44/boe, while the Eagle Ford and Bakken represented higher-cost supply.

The Annual Global Cost Study reviewed the reported results of the integrated majors, senior (large-cap) producers, North American small-cap producers and international producers. Results were compiled for companies with worldwide crude oil production of 33 million b/d and natural gas production of 122 Bcf/d; historical results from several legacy companies also were included. The group in total has spent $2.6 trillion in the last five years to add 100 billion boe in proved reserves.

Costs should continue to decline this year, with BMO forecasting operating expenses to fall by another 5-10% and reserve replacement costs to decline by 14%. That would imply supply costs all-in at around $70 boe.

Also of concern are industry losses on capital employed, which averaged 6.7% last year, bringing the three-year returns to 2.7%, or 4.4% normalized for writedowns.

“This means only a select few make full-cycle investment returns,” Ollenberger and Dziuba said.

Don’t be fooled by field-level costs because operators often need higher oil prices than are suggested to make investment returns, the analysts said. “Typical” field level estimates appear to suggest based on recent commentary by producers that most global output is economic below $40/bbl and that new volumes are mostly viable below $60/bbl.

“However, these ignore important corporate and fiscal costs that alter the true economics of oil production,” the analysts said. “We find that field level estimates are $12/bbl, or 22% below the industry’s true cost structure based on our survey.”

Overall North American oil and gas costs were down by 26% to $82/boe, while international costs slumped 41% to $79. Canada fell below the United States in 2015 but it retains a “longer-term disadvantage,” the analysts said. Underlying capital costs eased last year but savings were tempered by an exceptionally high number of negative revisions and as net reserve additions fell 80% to only 5.5 billion boe. Producers last year recognized almost 20 billion boe of negative revisions because of falling commodity prices.

Based on the survey, core operating expenses improved 34% to $22.48/boe in 2015 from $34.07/boe, led by a 34% decrease in lease operating and 43% decrease in general/administrative costs. However, U.S. producers have realized reductions of only 15-20% on average.