Irina Slav
Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.
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By Irina Slav – Jun 23, 2024, 6:00 PM CDT
- Despite a significant production boost in 2023, sustained growth is uncertain due to declining well productivity and increasing costs.
- Ongoing mergers and acquisitions in the shale industry are consolidating control and could impact future production growth rates.
- Just because efficiency gains boosted production in 2023, it does not mean the boost will be repeated this year.
HSBC’s recent forecast suggests U.S. shale oil production will keep rising for another four years before peaking, but the real story is more complex. Wood Mackenzie highlights a new era of efficiency gains in shale, yet these advancements come with significant costs that could hinder future growth. Despite last year’s impressive 1 million barrels per day increase, driven by unexpected efficiency improvements, the sustainability of such gains is far from guaranteed.
Shale Shocked
Last year, the U.S. shale industry surprised pretty much everyone, possibly even some within its circles, by boosting production more than forecasters expected amid a consistent decline in rig numbers.
One of the reasons for this growth was the price of oil, which was still comfortably high in the early months of 2023. The other big reason was a new urge among drillers to make their drilling more efficient however they could.
The Wood Mac report, authored by the research director for the Lower 48, Maria Peacock, notes that the new efficiency gains would not have been possible just a few years ago because shale drilling operations were scattered over larger areas. Now, they have become more clustered, opening up opportunities for improvements such as downtime reduction.
Indeed, downtime reduction is, according to Peacock, a major feature of the new efficiency era in U.S. shale. “While tech improvements have been transformative, the greatest advances have come from eliminating downtime,” she wrote.
Fracking, meanwhile, has become faster and cheaper, laterals have become longer, and richer companies have started fracking several wells simultaneously. All this has helped with the production boost—and with declining well productivity.
Related: Supply Concerns and Demand Optimism Are Boosting Oil Prices
Well productivity in the Permian, as Reuters reported back in April, citing Enverus data, has shed 15% since 2020. This was not exactly an unexpected development, given the nature of shale oil reservoirs and the nature of fracking. In fact, the faster well depletion in shale as compared with conventional oil wells has often been cited by contrarian analysts as the reason for their bullish outlook on oil prices. And yet, U.S. output has just continued rising.
SimulFrac
This seems to have created the perception that U.S. crude oil output will continue to rise at the same pace for all eternity,