Wood Mac: Cutting costs was how U.S. shale survived

A consultant group looking at spending in U.S. shale basins said it was interested to see how cost inflation figures into production trends for next year.

Cutting costs was what kept U.S. shale going through the latest market downturn, a new report finds File photo by Gary C. Caskey/UPI | License Photo
Cutting costs was what kept U.S. shale going through the latest market downturn, a new report finds File photo by Gary C. Caskey/UPI | License Photo

U.S. shale oil production has so far proven to be more resilient to a weaker oil price market than originally expected. In its latest monthly market report, the International Energy Agency, based in Paris, said it raised its 2017 forecast for gains from the United States to 370,000 barrels per day this year and 870,000 bpd for next year.

Jessica Brewer, an exploration and production analyst for consultant group Wood Mackenzie, said shale producers have so far been able to do more with less, especially during that ended with oil prices bottoming out in the upper $20 per barrel range last year.

“During the downturn, U.S. producers were able to find ways to slash their costs quickly compared to the rest of the industry, and this has been critical to their recovery,” she said in a report emailed Friday to UPI.

In its latest estimate, the U.S. Energy Information Administration said it expects total U.S. oil production for the year to average 9.2 million bpd. By next year, that jumps to 10 million bpd, which would set an all-time record and beat the previous high in 1970 by 400,000 bpd, which is about half of what North Dakota produces by itself each day.

Continental Resources, one of the largest stakeholders in North Dakota shale, said last month that fourth quarter production should be at least 14 percent higher than the third quarter.

“Continental’s operations continue to become more capital efficient each quarter, allowing us to sustain our low-cost advantage,” Chairman and CEO Harold Hamm said in a statement.

Brewer said that, apart from the Permian shale basin in Texas, things are just starting to “warm up” in terms of costs.

“In fact, we are beginning to see cost increases in the supply chain in 2017, spurred on by higher rig activity and the drawdown of the backlog of drilled but uncompleted wells,” she said.

Wells completed loosely equates to the prospect for commercial operations, with completions indicating an operation is close to actual production. Uncompleted wells could indicate a potential slowdown in production

The base case for Wood Mackenzie finds capital investments stabilizing at around $400 billion per year through 2020, with operators in U.S. shale increasing their spend from $64 billion in 2017 to $90 billion in 2020.

The EIA said total November crude oil production averaged 9.7 million bpd in November, an increase of 360,000 bpd from October. Most of that increase came from the Gulf of Mexico, which accounted for about 80 percent of the gains from the previous month.

By Daniel J. Graeber