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.