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Hail Shale
America’s Smallest Oil Producers Aren’t Backing Down

It’s not the size of the dog in the fight, it’s the size of the fight in the dog, and it looks like there’s plenty of fight in America’s smallest oil producers. Low-output stripper wells can’t pump much more than a dozen barrels of oil per day, and they’re often run as family operations. Conventional wisdom would dictate that such lack of scale would make these small-time producers more vulnerable to sub-$40 oil prices, but in an encouraging sign for America’s immediate energy future, they’re proving surprisingly resilient in today’s bearish crude market. Reuters reports:

[I]nterviews with executives and experts show those smallest, often family-owned, businesses are also among the most resourceful, keeping the oil flowing even as prices near 11-year lows and a growing number of their wells lose money.

While hopes for a rebound are fading, “strippers” are doing everything they can to keep their “nodding donkey” pumps working so they can hold on to land leases that give them access to oil reserves […]

Stripper wells pump no more than 15 barrels of oil per day but together over 400,000 wells scattered across the nation’s oilfields produce over a tenth of U.S. oil output, enough to affect the market supply-demand balance and prices.

It’s hard not to see some of what makes America great in the resilience of these “mom-and-pop” oil producers. In some ways, this is what Saudi Arabia and the rest of OPEC’s petrostates are up against today. Riyadh pushed the cartel not to react to falling prices by cutting production, instead advocating that members fight for market share and endure the fiscal fallout. No longer content with acting as the global swing producer, the Saudis hoped to pass that mantle to U.S. oil producers—especially shale firms whose operations can be started and stopped relatively quickly. And to some extent, that strategy has borne fruit: U.S. production tapered off in the second half of 2015, and the shale industry has had to go to extraordinary lengths to try to stay afloat.

But while stripper well producers tighten their belts and oil majors cut capital expenditures, petrostates are running up massive budget deficits. It’s a game of chicken with sky-high stakes, and so far neither OPEC nor U.S. producers seem willing to back down. It looks like 2016 will be another year of cheap oil.

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