Hail Shale
Lone Star Shale Producers Defy OPEC

For a state that prides itself on being “bigger” in every sense of the word, Texas is managing to handle smaller oil profit margins awfully well, as a number of producers in the state’s two shale basins are keeping output up despite plunging prices. Bloomberg reports:

A handful of shale patches in [Texas], which would be the world’s sixth-largest oil producer if it were a country, are profitable with crude below $30 a barrel, according to an analysis by Bloomberg Intelligence. In the Eagle Ford’s DeWitt County, which produced more than 100,000 barrels a day in November, the average well can be profitable with U.S. benchmark crude at $22.52 a barrel, $4 below the lowest level this year. […]

“It may be harder to kill many U.S. E&Ps than analysts originally thought,” Bloomberg Intelligence analyst William Foiles said in the presentation. “The wide range of break-evens undermines efforts to come up with a single threshold for U.S. shale producers.”

And even as some producers find ways to turn a profit with today’s profits, many in the industry that have seen their margins erased are nevertheless still busy pursuing a forward-looking strategy: drilling but not yet fracking wells. This approach essentially lines up projects to bring online the minute prices rise high enough to justify them. This so-called “fracklog” is a widespread phenomenon, and it’s growing. For Saudi Arabia and the rest of the world’s petrostates, that’s a terrifying prospect, because it means what if and when we see the global glut erased and prices start trending back upwards, these new American supplies will flood the market and bring those prices right back down again.

And while producers amass this fracklog, plenty of companies are innovating ways to keep output up despite the fact that America’s oil benchmark is currently lingering below $32 per barrel. The shale boom isn’t done yet.

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