• 1 hour Only 1/3 Of Oil Patch Jobs To Return To Canada After Downturn Ends
  • 4 hours Statoil, YPF Finalize Joint Vaca Muerta Development Deal
  • 6 hours TransCanada Boasts Long-Term Commitments For Keystone XL
  • 7 hours Nigeria Files Suit Against JP Morgan Over Oil Field Sale
  • 14 hours Chinese Oil Ships Found Violating UN Sanctions On North Korea
  • 19 hours Oil Slick From Iranian Tanker Explosion Is Now The Size Of Paris
  • 23 hours Nigeria Approves Petroleum Industry Bill After 17 Long Years
  • 1 day Venezuelan Output Drops To 28-Year Low In 2017
  • 1 day OPEC Revises Up Non-OPEC Production Estimates For 2018
  • 1 day Iraq Ready To Sign Deal With BP For Kirkuk Fields
  • 1 day Kinder Morgan Delays Trans Mountain Launch Again
  • 1 day Shell Inks Another Solar Deal
  • 2 days API Reports Seventh Large Crude Draw In Seven Weeks
  • 2 days Maduro’s Advisors Recommend Selling Petro At Steep 60% Discount
  • 2 days EIA: Shale Oil Output To Rise By 1.8 Million Bpd Through Q1 2019
  • 2 days IEA: Don’t Expect Much Oil From Arctic National Wildlife Refuge Before 2030
  • 2 days Minister Says Norway Must Prepare For Arctic Oil Race With Russia
  • 2 days Eight Years Late—UK Hinkley Point C To Be In Service By 2025
  • 2 days Sunk Iranian Oil Tanker Leave Behind Two Slicks
  • 2 days Saudi Arabia Shuns UBS, BofA As Aramco IPO Coordinators
  • 3 days WCS-WTI Spread Narrows As Exports-By-Rail Pick Up
  • 3 days Norway Grants Record 75 New Offshore Exploration Leases
  • 3 days China’s Growing Appetite For Renewables
  • 3 days Chevron To Resume Drilling In Kurdistan
  • 3 days India Boosts Oil, Gas Resource Estimate Ahead Of Bidding Round
  • 3 days India’s Reliance Boosts Export Refinery Capacity By 30%
  • 3 days Nigeria Among Worst Performers In Electricity Supply
  • 4 days ELN Attacks Another Colombian Pipeline As Ceasefire Ceases
  • 4 days Shell Buys 43.8% Stake In Silicon Ranch Solar
  • 4 days Saudis To Award Nuclear Power Contracts In December
  • 4 days Shell Approves Its First North Sea Oil Project In Six Years
  • 4 days China Unlikely To Maintain Record Oil Product Exports
  • 4 days Australia Solar Power Additions Hit Record In 2017
  • 4 days Morocco Prepares $4.6B Gas Project Tender
  • 4 days Iranian Oil Tanker Sinks After Second Explosion
  • 7 days Russia To Discuss Possible Exit From OPEC Deal
  • 7 days Iranian Oil Tanker Drifts Into Japanese Waters As Fires Rage On
  • 7 days Kenya Cuts Share Of Oil Revenues To Local Communities
  • 7 days IEA: $65-70 Oil Could Cause Surge In U.S. Shale Production
  • 7 days Russia’s Lukoil May Sell 20% In Oil Trader Litasco
Alt Text

Has Oil Become Overbought?

As oil prices continue their…

Alt Text

The Biggest Oil Collapse In History

Venezuela’s oil production continues to…

Alt Text

Trump Proposes Most Aggressive Offshore Drilling Plan Ever

The Trump administration has proposed…

Will US Shale Boom Continue Or Have A Hiatus?

Will US Shale Boom Continue Or Have A Hiatus?

The conventional wisdom recently has been that North America will keep producing shale oil for some time despite the higher costs associated with hydraulic fracturing and the 50 percent drop in oil prices over the past eight months.

The thing about conventional wisdom is that it tends to be challenged, sometimes successfully. And shale’s biggest producer in the United States, EOG Resources Inc., is saying the recent rapid growth in its own shale production will end this year. And this idea is supported by people with experience in oil.

Certainly, though, the logic behind the theory of continued shale production is solid: Oil prices will bottom out, then begin to rise to the point where crude from shale becomes profitable again despite the cost of fracking. The only question is whether OPEC would then accept US shale as a competitor and cut its own production to shore up prices. Related: Is Oil Returning To $100 Or Dropping To $10?

A forecast issued Feb. 17 by BP was more specific. The BP Energy Outlook 2035 expects US production will grow rapidly for the immediate future, then “flatten out.” Or, as BP’s chief economist, Spencer Dale, told The Wall Street Journal, “U.S. [shale] oil can’t continue to grow rapidly forever.” And OPEC will be ready to fill that vacuum.

That may very well happen a bit sooner, Houston-based EOG Resources said Feb. 19. It said it was “intentionally choosing returns over growth.” The company stressed, though, that if oil prices were to rise back to around $65 per barrel from the current $50, it could resume “double-digit” growth in 2016.

Until and unless that rebound comes, EOG said, it is cutting capital expenditures this year by about 40 percent and holding back on its crude reserves to make sure it has enough product in the event of such a short turn-around on prices. Other US shale producers, notably Noble Energy of Houston and Devon Energy of Oklahoma City, are cutting expenses at about the same rate.

Will more companies do the same? “EOG is viewed as the premier company in shale development, and if they’re not going to grow, it is a very important signal to the market,” Michael Scialla, an analyst at Stifel Nicolaus & Co. in Denver, told Bloomberg. “The argument that this slowdown is going to take a while to have an impact on supply is completely wrong.”

Cutting costs is the key. Shale oil wells deplete quickly, so continued production requires constant drilling for new sources. And the drilling involves the more expensive method of hydraulic fracturing, or fracking, which isn’t consistent with cutting costs.

“The thing that has surprised me … is that companies large and small, financially strong, financially weak have really cut capital spending much quicker than I have seen before,” said Bruce Vincent, a 40-year veteran of the oil industry who just retired as CEO of Swift Energy Co. Related: Roman Abramovich Invests $15M In New US Fracking Technology

Despite the expense of fracking, shale oil has at least one important edge over conventional oil fields, which often are shared by competing oil companies. Under conventional oil extraction, a company that stopped drilling to cut costs ran the risk that another company would take all the oil from that reservoir for itself.

That doesn’t apply to shale, because the oil is locked tightly within underground rock and isn’t available without specific drilling, helped by fracking. That means shale producers can afford to suspend extraction until it becomes profitable again without fear of losing the oil to competitors.

Or as Harold Hamm, the CEO of Continental Resources Inc. of Oklahoma City, told an oil conference in January, “[Now] you can leave it in the ground. In the old days you had to produce because everybody was sucking on the same straw.”

The only question that remains is whether the price of oil rebounds, and how soon. That will depend largely on whether OPEC finally decides to cut its own production.

By Andy Tully of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • adolfo del castillo on December 23 2015 said:
    ....let us ask Mr. Ali Al Naimi if his strategy over shale oil producers is working.............

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News