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New shale oil well productivity drove U.S. production higher in the last few years, with the average daily rate for the first month of operation rising from less than 100 barrels for most shale plays to between 200 and more than 600 barrels, the Energy Information Administration said in a new report.
Image courtesy: EIA
Last year, the energy authority said, shale oil production came to account for 54 percent of the United States’ overall oil production, in part thanks to this higher new-well productivity. The EIA said this higher productivity was the result of a combination of factors including the wider use of hydraulic fracturing and the drilling of more—and longer—horizontal wells, but most notably the increase in the amounts of frac sand used in new wells.
This combination of factors helped shale drillers to stay afloat and keep production going even during the downturn. In 2015 and 2016 there were fewer new wells drilled, but those that did get drilled were located in more productive areas and were drilled more quickly. Now that the worst is over, they are focusing on the Permian, the EIA noted, which holds more untapped reserves than the rest of the oil patch.
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Average full-cycle breakeven costs in the Permian are US$42 per barrel, according to Rystad Energy. This accounts for the costs of the whole process—from drilling a well to starting production from it. If you add to its exploration costs for new locations, the cost comes in at US$48 per barrel—still significantly less than, say, offshore fields, and a lot below current oil prices.
What’s more, a shale oil well makes its money back in one year, compared to six to seven years for offshore projects. No wonder, then, that investors strongly prefer shale and the Permian in particular, and so do drillers.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.
These companies piling into the shale are making poor to negative returns on investment, so the real question here is how long will this go on for?