The Many Lives of the American Shale Drilling Industry
The challenges facing the American horizontal drilling and fracking industry, also known as the shale drilling industry, have been documented extensively over the past several years. The article linked below calls them “casualties.” Are they?
The Organization of Petroleum Exporting Countries (OPEC) lowered oil prices by increasing production to regain the market share that the U.S. Shale drilling industry was taking from them- six years ago. The shale drillers kept drilling.
OPEC thought these drillers could not be profitable with oil under $80 per barrel. They reacted by lowering cost and improving technology. Prices continued to fall and have yet to recover above $70 West Texas Intermediate(WTI); the benchmark price of U.S. oil. In fact, as of today, OPEC is attempting to drill another nail in the coffin of the U.S. Shale industry by increasing production and crashing the price to $31 per barrel (WTI).
Average decline rates of 70% of recoverable oil, in the first three years, require that these companies continue aggressively drilling in order to just keep up with current production levels. They have done that.
These horizontal drilling companies have encountered numerous other problems, not the least of which is fracking interference from their own subsequent wells thereby diminishing the reserves that they had previously counted on their financials. They’ve acknowledged this – and kept on drilling and fracking.
Investors have all but abandoned them for lack of returns on investment. They are taking hits that few industries have survived.
When the horizontal drilling and fracking industry began in earnest the U.S was producing around 9 million barrels of oil per day. For the past two years U.S. production has hovered stubbornly, above 13 million barrels per day. The horizontal drilling and fracking industry is the sole reason for this resurgence of American oil and gas production.
The destruction of hundreds of existing vertical wells by their horizontal frack jobs resulted in the formation of the Oklahoma Energy Producers Alliance (OEPA). The OEPAs sole mission is the protection of the small business oil and gas producers in Oklahoma. Since its inception three years ago this organization has been vigorous in opposing the destruction of vertical wells from horizontal fracking and the policy issues allowing and incentivizing it.
The horizontal drilling and fracking companies are tenacious and “bare knuckle“ opponents. But, I do not consider them as permanent adversaries. This article calls them casualties. I call them survivors in the ongoing tradition of the US oil and gas industry. They will look different than they do now. There will be more bankruptcies and consolidations. But the industry and the technology that has spawned it will continue to improve and survive.
It is no secret that I have been active in the battle between the large horizontal frackers and the small business oil and gas producers. But I have never underestimated them. Neither should OPEC or the American public.