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U.S. Shale Output Falls, But Efficiency Gains Continue

U.S. Shale Output Falls, But Efficiency Gains Continue

The April drilling productivity report of the Energy Information Administration (EIA) has confirmed the downward trend in both oil and gas production, despite improving oil prices over the last month, but the silver lining is an emerging boom in rig efficiency.

The report covers the seven shale plays across the States, which contribute the lion share of the country’s oil and gas output. In every one of them, total oil and gas production was down in March, compared with February, and is expected to fall further in May.

From April to May, the EIA expects losses across all major shale basins:

Eagle Ford: -62,000 bpd
Bakken: -31,000 bpd
Niobrara: -16,000 bpd
Permian: -4,000 bpd
Total U.S. shale: -114,000 bpd

At the same time, however, rig efficiency seems to be continuously improving, as demonstrated by the increase in new oil and gas well yields, given the fact that drilling rig numbers have been declining as consistently as overall oil and gas production. In May, rig efficiency is projected to continue rising. Related: Oil Up As Bullish Sentiment Returns To Markets

Improving drilling and well efficiency has been touted by the industry as a major advantage in this tense environment. Basically, E&Ps say they can pump more oil and gas for less money, so their breakeven point is lowering, in some cases matching and even going below the current price of oil benchmarks.

News reports continually highlight the resilience of the sector, but this is a gloomier interpretation as well. As Robert Rapier notes in an article for Forbes, calculating the average breakeven point for shale boomers is pointless because there is so much variance from well to well, let alone from play to play, that any average would be seriously misleading.

That things in the shale industry are not as good as sector players would like us (and their lenders) to believe was last month emphasized by none other than the CEO of Schlumberger, the world’s top oilfield service provider. Related: 70-90% Decline In Well Completions Raises Hope For Oil & Gas

Paal Kibsgaard said improving operational efficiencies have little to do with actual technical improvements in the drilling and pumping process. They are, he said, a result of energy companies getting more for less money from their oilfield service providers.

It’s like a Greek tragedy in the shale patch. E&Ps are fighting for survival against long odds, and in doing so, are bringing down midstream operators who also need to survive, so they cut their prices to the extent of incurring losses in a bid to keep operating. Everybody suffers, and some die at the end. Related: Why Low Oil Prices Haven’t Helped The Economy

According to Kibsgaard, the traditional strategy of tightening belts and outwaiting the downturn won’t work this time, because this downturn is not a short-term affair like the ones in the past. What the upstream industry needs is a more consistent approach to operating efficiency improvements.

A lot of industry observers and analysts—in fact most of them—agree that cheap oil is here to stay. Some disagree, arguing that oil could return to three-digit territory before the end of the decade. Whatever the case, it might be a good idea to heed Kibsgaard’s suggestion and direct more investments to raising drilling and production efficiencies. It is a tough path, but those who follow it have a better chance of survival.

By Irina Slav for Oilprice.com

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  • allen on April 12 2016 said:
    What really gets me is how Obama goes after stock marketers about fraud and high prices, but i don't see them going after the oil companies and producers who have shut down the pumps and released there workers in an attempt to jack oil prices back up by saying were doing everything we can, but it just can't be done.

    Just before prices went down a dollar, the companies here in Snook and college station TX, drilled up to 8 oil producing wells withing a mile or two of each other and all the holding equipment for those wells, and they were running, truck after truck running crude down the roads, like a train of nothing but tankers.

    So what's the difference to inside trading to what the owners of these pumps our doing, I'm happy that all these people lost the $80,000 plus a year driving or labor job, and these companies making million upon millions of dollars, and then having the nerve to go Bankrupt after just 3 months of fallen prices.

    And the employees who lost there jobs from the gas and oil manufacturing companies, our they the same ones who went on strike demanding some of the profits these companies were making.

    What about Exon who went from 65 million per quarter to a whopping 450 million and then stated that wasn't all from gas, that's true. but it was still from that oil.

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