Low oil prices were supposed to cripple American shale companies, but so far the industry is proving to be surprisingly resilient. The New York Times reports:
The Norwegian oil giant Statoil…is experimenting here in the Eagle Ford shale field with a host of new drilling tools and techniques.
It is trying out different grades of sand to blast along with water and chemicals to better loosen the hard rock deep underground and increase a well’s production, and varying the depths of wells to squeeze out even more oil. It is using new well chokes that technicians can operate remotely from a computer or even a smartphone to quickly adjust flows to maximize production without overtaxing pipelines…Even as the company cut the number of rigs it runs here from three to two since last year, it has managed to lift production by one-third, a feat that would have been unimaginable a few years ago. […]
[A] majority of the major companies are managing to survive by increasingly using techniques traditionally more common to manufacturing plants than to oil fields to achieve economies of scale…Using rigs that can move on tracks or legs, they are drilling and completing several wells at a time, slashing the time it takes to drill each well.
The Saudis have pushed for OPEC inaction in the face of falling oil prices these last ten months, seemingly content to endure the budget deficits these discount prices are incurring in the hopes of squeezing out upstart, high-cost U.S. shale producers. Just a month ahead of the cartel’s meeting, the Saudis seem confident that this strategy is working, with one official telling the FT that “[t]here is no doubt about it, the price fall of the last several months has deterred investors away from expensive oil including US shale….”
But this plan relies on American fracking firms being unable to profitably drill at current prices, and we’re seeing many companies innovating processes and implementing ways to produce more with less. True, the Energy Information Administration just cut back its forecasts for American production this year and the next, but it still predicts that U.S. output will grow by 530,000 barrels per day (bpd) in 2015, and by 20,000 bpd in 2016. In other words, the Saudis haven’t stopped shale, they’ve merely slowed its advance.
The Saudis have strong-armed the rest of OPEC’s petrostates into playing a game of chicken with fracking, but they haven’t seem to have included our ability to get better at fracking in their calculations. Saudi Arabia can hold out for a while yet on the back of its massive sovereign wealth fund, but the rest of OPEC isn’t so well prepared, which should make for an interesting round of discussions at the cartel’s summit next month. In the mean time, the U.S. fracking industry will be busy trimming the fat. Shale, it seems, is still hale.