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Frack Baby Frack
How Some Shale Producers Are Boosting Output

This shouldn’t keep happening. Shale companies shouldn’t be able to keep upping production at today’s prices, but that’s exactly what they’re doing. Reuters reports:

Shares of Oasis, Devon and Pioneer rose more than 2 percent after their respective forecasts were announced…[CEO Scott Sheffield] said Pioneer, which is adding rigs, expects to grow production 11 percent this year, up from a previous view of 10 percent. The company also confirmed it would grow 15 percent per year through 2018 thanks in part to cost cuts and tweaked technology. […]

At Oasis, executives now expect the company to produce 49,700 to 50,100 boepd, up from a previous estimate of 49,000 to 50,000 boepd…And at Devon, Chief Executive Dave Hager raised the company’s full-year production growth outlook for the second time this year.

When oil prices were hovering consistently above $100 per barrel as recently as the summer of 2014, the profit margins for hydraulically fracturing U.S. shale formations were wide and the concerns for the nascent industry largely logistical, rather than economic. As oil prices fell, many presumed America’s fracking output would as well, as companies were forced to cut back their relatively high-cost production as it no longer became profitable.

That hasn’t happened, or at least it hasn’t happened in the way most analysts projected it would. Shale’s bubble hasn’t burst—the boom hasn’t gone bust—but instead has slightly tapered off in the bearish market. Companies have experimented with a number of new techniques and technologies in order to squeeze more oil out for less money invested, and those innovative efforts are paying dividends as shale’s breakeven cost—the oil price producers need to turn a profit—continues to drop.

Saudi-led OPEC hasn’t cut production to send prices back up in large part out of hope that U.S. shale output would naturally flag. Every month that fracking firms defy that expectation is another month of pain for the world’s petrostates, and another reason not to bet against American innovation.

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  • rheddles

    Back to Saudis concern being fracking. Thought there had been progress here, but clearly regression is occurring.

  • Jim__L

    Which makes the following question critical — How is the Saudi sovereign wealth fund doing?

  • Jacksonian_Libertarian

    “Every month that fracking firms defy that expectation is another month of pain for the world’s petrostates, and another reason not to bet against American innovation.”

    I pointed this out last year when the American Interest was reporting on the coming end of American Fracking because of falling oil prices. I pointed out that the OPEC state owned oil monopolies would never be competitive with the small fast moving American Shale Oil developers who are fully exposed to the “Feedback of Competition”. I said that I would continue to put my money on the American’s, whose record of steady improvements had already brought the cost of production way down. And I saw no reason for this not to continue, and in fact with much greater motivation provided by the price pressures.

    • Jim__L

      Another wonderful advantage? These new innovations form an intellectual asset that will make American frackers extremely in-demand as fracking spreads to the rest of the world. American companies will be part of the inevitable continued energy revenue stream, as foreign companies suffer for ignoring new tech.

      On the other hand, that will give other countries more incentive to be troublesome about AGW. Still, it’s a massive strategic win for America if we get to cash in on the cheap-energy bonanza while they’re left with supporting green boondoggles.

      Who says America never wins anymore? We just have to realize where ideology is blinding us from wins like that.

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