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Revisiting the Shale Oil Hype: Technology versus Geology

March 31, 2015

Revisiting the Shale Oil Hype: Technology versus Geology

The press has been all abuzz the past few weeks speculating on what the drop in oil prices will mean for U.S. shale oil (tight oil) production. Pundits have been falling over themselves quoting various estimates of the breakeven cost of production in this play or that, and rushing to be the first to declare a peak in the Bakken, Eagle Ford, Niobrara or wherever.  The Baker-Hughes rig count, which comes out every Friday, has become a must-read for people who probably had never heard of it a few months ago. Even the U.S. Energy Information Administration (EIA), based on estimates, suggests production is declining in three big shale oil plays.

The industry, on the other hand, has been more circumspect. They point to productivity gains being made in drilling and completion technology that lower costs, and suggest they are developing a backlog (aka “fracklog”) of wells that have been drilled but not completed, hanging in abeyance for the inevitable oil price rise (half or more of the cost of completing a well is the fracking). Keeping a stiff upper lip in the face of harsh pricing realities, many companies are telling investors that despite slashing capital expenditures on drilling and exploration (in some cases by more than 40%), production will be maintained and even rise. Others, such as Whiting, are putting themselves up for sale or, in the case of Quicksilver, declaring bankruptcy.

In my Drilling Deeper report published last October I stuck my neck out and made projections of future production by play based on drilling rates and well quality, not price, although price and drilling rates are closely linked. This was based on an analysis of all well production data by play which showed:

 

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