When oil prices bottomed out under $27 per barrel this January, the American shale industry looked to be in trouble. Production was already falling off of a June 2015 high of nearly 9.6 million barrels per day (bpd), and since then America’s oil output has continued to decline down to a 2-year low of 8.4 million bpd last week. Lower prices have clearly been taking their toll on producers struggling to turn a profit plumbing shale, a type of production that—when compared to, say, Saudi Arabia’s massive conventional fields—is relatively expensive.
But oil prices are trading in the mid-$40 range these days, and shale companies busy these last months and years innovating new ways to boost efficiencies are now figuring out how to better stay afloat in this new market equilibrium. There’s a shale rebound underway, and as the EIA reports, it’s slowing our production decline:
Higher and more stable crude oil prices are contributing to increased drilling in the United States, which may slow the pace of production declines. Benchmark West Texas Intermediate (WTI) crude oil prices averaged $46.59 per barrel (b) over the past three weeks, a 40% increase over the average price in the first quarter of 2016. The rig count for active onshore rotary rigs in the Lower 48 states, as measured by Baker Hughes, stood at 352 rigs on July 22, 45 rigs above the number at the end of June. Although declines from existing wells are expected to result in a net decrease in production, increased drilling and higher well productivity are expected to partially offset the decline. […]
In addition to having more rigs drilling new wells, the average productivity of rigs continues to increase. The new-well oil production per rig through July 2016 averaged 796 barrels per day (b/d) in the Bakken region, 983 b/d in the Eagle Ford, and 470 b/d in the Permian, according to EIA’s latest Drilling Productivity Report. These levels represent productivity increases of 155 b/d, 226 b/d, and 111 b/d per well, respectively, over the 2015 averages for these regions.
We’re not out of the woods yet, though. While market prices can fluctuate significantly day-to-day, changes in production tend to occur over longer time scales (excepting, of course, major supply disruptions). As such, the EIA expects American output to continue to taper off through the end of this year, provided prices hold near their current levels.
But fracking firms have proven themselves to be experts at defying expectations, and it would be a mistake to discount their ability to refine methods and get more oil out of the ground for less time and money spent. Shale production also occurs on a smaller scale than more conventional oil projects, which gives it the ability to ramp up (or down) quicker than most other supply sources. That means that these rumblings of a fracking rebound could build momentum into a full-fledged boom in a hurry.