Funny Thing

…about competition and private cost control.

The Saudis and their OPEC colleagues, at the start of the shale and fracking revolution last year, made an overt decision to keep their own production up, which would allow prices to drop (much of OPEC—especially Saudi Arabia—had lots of cash reserves with which to handle the drop), which would kill American deep drilling and put those competitors out of business, restoring price control to OPEC.


The US shale industry is by necessity becoming more efficient than ever. Low oil prices have become an opportunity. The Saudis have lit a fire under producers to trim the fat, deploy new productivity-boosting technologies and zero in on the most productive geology.


Just a year ago, popular opinion seemed to be that shale oil production was generally unprofitable if oil prices fell below $80 per barrel.


Statoil, for example, reported that just in a few months it cut its drilling time for new wells in Texas’ Eagle Ford formation from 21 days to 17. That kind of efficiency gain has helped “petropreneurs” reduce the cost of drilling wells from $4.5 million to $3.5 million.

Other companies are experimenting with new fracking fluids and different types of sand to create better shale-rock fractures. Some are effectively incorporating Big Data to better understand the sweet spots of geologic formations and optimal well-spacing to increase productivity.

The result is a rapid decline in the break-even price across shale plays. Already, analysts believe it is now $60 per barrel and before long will fall to $50.


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