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US Shale Oil Production Costs Fell by 30% from Decade High

US Shale Oil Production Costs Fell by 30% from Decade High thumbnail

Costs associated with shale oil exploration and production decreased by a third in 2015 thanks to implementation of more effective technologies. Experts are certain that this could affect crude oil prices in the short term.

Costs beared by US shale producers shrunk by 25-30% last year in comparison to their decade high in 2012. This is attributed to the usage of advanced technology that improved the effectiveness of both well drilling and post-drilling well development, according to research conducted by the energy industry consultant IHS Global Inc. and commissioned by the Energy Information Administration (EIA).

IHS has conducted research in the US’s largest shale oil production regions of Eagle Ford, Bakken, Marcellus and Permian.

When compared to figures from 2014, the cost of putting a single oil well online decreased by 7-22% last year. The experts at IHS believe that keeping exploration and production costs lower can have an impact on oil prices in the short term and effect prices for other energy sources as well. In the wake of crude prices recovering from February’s 12-year low, shale producers have lifted production from its previously frozen levels in mid-March.

Companies like Pioneer Natural Resources (PXD) and Oasis Petroleum (OAS) plan on recovering from 70 to 85 percent of their oil production, provided that minimum returns can be obtained.

“US shale oil was never going to stand still,” – John Richardson of ICIS commented on these technological breakthroughs.

Shale oil cost chart
Source: U.S. Energy Information Administration

14 Comments on "US Shale Oil Production Costs Fell by 30% from Decade High"

  1. Jean Jaar on Fri, 8th Apr 2016 6:56 pm 

    This is a natural learning curve with any new technology. Humans naturally innovate, if motivated.

  2. shortonoil on Fri, 8th Apr 2016 7:25 pm 

    Halliburton probably would not say that their cost went down 30%; they would say that their income went down 30%. Those cost savings mostly came right out of their contractors hide. Being in the service business has become a very rough game!

  3. green_achers on Fri, 8th Apr 2016 9:04 pm 

    Feh. It means wage earners all up and down the production chain and suppliers are being paid less.

  4. Apneaman on Fri, 8th Apr 2016 9:22 pm 


  5. Anonymous on Fri, 8th Apr 2016 11:27 pm 

    If humans naturally ‘innovate’, why did it take western civilization 1000+ years of xitan dark ages to crawl out of that hole?

    I could go on..and on…and on..about how and why that assertion simply isnt true. We are ‘good’ are repackaging and slightly tweaking what we already have to make it appear new and improved, but that is about it. And there is no iron law that states ‘tech’ always has a positive learning curve. Often times things get ‘cheaper’ because they are heavily subsidized or costs get externalized onto…someone else. This helps foster the illusion things always get cheaper with time.

    And that does not even get into the question of whether the article’s assertion is even true. It could be utter Bullshyte. False, misleading, or simply inaccurate claims are made constantly in this day and age.

  6. Trevor Coleman on Sat, 9th Apr 2016 11:10 am 

    Since the number of drilling rigs has dropped from about 1200 to 400, I would assume that the 400 rigs left would be the most efficient rigs drilling in the best areas. The 800 less efficient rigs drilling in more difficult and uneconomic areas are no longer working. That alone would have a huge effect on the average costs.

  7. rockman on Sat, 9th Apr 2016 12:14 pm 

    Jean/Trevor – I live in this world every day. You can chose to believe it or not…no difference to the Rockman. There’s been no change in drilling or frac’ng tech since oil prices fell. The equipment used today is the same that was used in 2014. And I don’t mean the same type of equipment but the very same equipment. As far as rig efficiencies go that has actually never been an issue. I won’t go into the details but all the improvements in shale drilling and frac’nv from the very beginning has happened “below the drill floor”. And that tech wasn’t developed by the drilling companies nor do they handle it. That’s been done by a completely separate part of the industry. All drilling rigs use the same identical tech to handle their end of the effort.

    Two primary reasons for the numbers. First, only the better looking shale prospects are being drilled today. There has never been nor will the ever be a “typical” prospect…shale or otherwise.

    The main reason for improvement is lower costs. Drill rigs that rented for $26,000/day can be had for $12,000/day now. And the down hole direction drilling equipment (where all the efficiency gains have been made) have seen rental rates fall from a high of $28,000/day to $15,000/day.

    It’s real simple: just follow the money. LOL.

  8. FloridaGirl on Sat, 9th Apr 2016 2:03 pm 

    In addition to supply/demand cost reductions like Rockman talked about, there is also a decrease in the cost of fuel used in the process and as part of suppliers’ and workers’ costs. The importance of that factor is EROEI (Energy Returned on Energy Invested). As the price of oil goes back up, so will the cost of drilling and production. The shale oil producers were cash flow negative at $100+ oil. My question is, “Is the total EROEI of shale oil in general greater than 1?”. If not, then it will never be profitable at any oil price.

  9. shortonoil on Sat, 9th Apr 2016 3:04 pm 

    “Is the total EROEI of shale oil in general greater than 1?”. If not, then it will never be profitable at any oil price.”

    Run your car, and feel what is coming out of the tail pipe; its hot! That is the waste heat that must be present for the process to go forward. For the combustion of any liquid hydrocarbon to take place, that waste heat is at least 29% of the total energy content of the fuel. That places the minimal theoretical EROI at 1.43 : 1. Taking into consideration the losses that occur during processing and distribution the ERoEI (at the well head) of a liquid hydrocarbon must be 6.9:1 to breakeven. Above that there is surplus energy to be delivered to the end user. Below that, it becomes an energy sink (energy must be input into the system).

    The average Bakken well reaches its “dead state” (goes from an energy source to an energy sink) at about 70,000 barrels of production, or about 10 months. Most condensate produced from wells in shale formations reach their “dead state” in a few weeks. Shale production is primarily a source of feedstock material; it has a limited market as opposed to fuel producing crude. It can only be economical to produce if there is an economy that is strong enough to use it.

    That depends on the ERoEI of conventional crude!

  10. rockman on Sat, 9th Apr 2016 10:35 pm 

    Florida girl – Good points. But let me explain again: folks greatly overestimate how much fossil fuels are used to drill a well…any well. I sign invoices for diesel all the time and I know what total well cost are. The fuel cost is typically less the 10% of the total cost..often less. The economic analysis of a project will typically reach an unacceptable level by the time EROEI reaches 5 or 6.

    But that doesn’t mean some wells drilled don’t low a EROEI. Take an extreme example: a dry hole: X bbls of fossil fuels consumed and no fossil fuels produced. EROEI can’t get much worse the that. LOL.

    Drilling decisions have never been based upon EROEI and never will be. They are analyzed on the basis of $RO$I. I can even make a case where 20% more Btu’s are consumed then are produced. The product produced is worth 40% more then the cost of the energy used. This is not an uncommon phenomenon in the refining business.

  11. FloridaGirl on Sun, 10th Apr 2016 2:43 pm 

    ShortOnOil and Rockman, thanks for your responses. I’m mostly a lurker here and your posts are those that I find most interesting.

    Rockman, do your projects with 10% or less fuel costs involve fracking? It sounds very fuel intensive to extract the frack materials including a lot of water and haul them in and haul the waste out.

    When I say total EROEI, I’m thinking big picture like short by including the fuel that the subcontractors use and the workers use plus averaging in fuel wasted in dry holes. Also the fuel used in the extra infrastructure construction and maintenance, particularly in an area such as North Dakota where a lot needed to be added. All this is embedded in the taxes and subcontractor costs (but those taxes may not be enough since the communities took on debt expecting continued input of oil taxes that may not occur).

    Back when oil was $100+, I analyzed the SEC filings for major North Dakota shale companies like Continental, Whiting and others and saw that they were only getting by then by adding debt and selling new stock. So that accounting data averages in taxes, dry hole costs, reduced prices due to shipping expenses, production expenses for existing wells and expenses for new wells, etc.

  12. geopressure on Sun, 10th Apr 2016 3:19 pm 

    FloridaGirl; the amount of fuel required to drill, complete (frack), & produce over a 20-year life of a well is negligible when compared to the amount of crude oil that is harvested… This is true on even the smallest wells – wells that are barely considered economic…

    The amount of Energy required to drill, frack, and produce a well is so small relive to the produced oil/gas that no one ever even thinks about it except ‘ShortOnOil’ (who is working off a number of bad assumptions)…

    Continental & Whitening were probably undergoing acquisitions &/or large leasing & development campaigns… Plus I think they had a lot of debt to start with, didn’t they? If you build an oil company the right way, there is no need to ever take on any debt, unless perhaps to buy someone out or make the jump from land to offshore or from shelf to deepwater where the big boys play…

  13. FloridaGirl on Sun, 10th Apr 2016 11:51 pm 

    geopressure, Continental and Whiting were cash flow negative without even counting acquisitions even back in 2013. I don’t know how debt they started with, but they were adding a substantial amount of debt.

    Will shale oil wells, considering their high decline rate, be economic for 20 years?

  14. Kenz300 on Tue, 12th Apr 2016 9:14 am 

    Banks are moving away from funding fossil fuels……….

    Funding Alternative energy sources like wind and solar are safer.

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