Investors, efficient drilling technologies, and diminishing crude production are keeping the U.S. shale industry afloat.
After a precipitous decline in oil over the last six months, the U.S. is still a winner with cheap oil. Despite forecasts of a slowdown, shale production is able to sustain itself.
The number of rigs this week dropped by 41, from 866 last week to 825, the lowest total of active rigs since March of 2011. The drop in the rig count is a blessing in disguise for oil producers: they now have the money and the technology to concentrate on areas of high shale production.
Many saw the ebbing of the rig count as a sign of hard times for the shale industry, sparking debate on whether companies would be able to break even or profit with high production costs. To much surprise, a drop in the rig count has not led to a drop in production.
“The US is slowly reaching energy independence, which has pushed OPEC to drive down oil prices,” said Robert Brusca, president of Fact & Opinion Economics.
Productions per rig from new wells have increased in three of the nation’s top producing shale regions: Eagle Ford has increased by 24%, Bakken has increased by 29%, and Permian Basin by 30%. Total shale output in the Permian Basin has increased 11% since 2008, and the number of drilling permits issued have increased almost twofold in seven years, from 4,435 in 2005 to 9,335 in 2012.
In 2002, the United States Geological Survey calculated that the Marcellus region contained about 1.9 trillion cubic feet of gas.
According to the Energy Information Administration, the Utica region in Ohio is one of two slated for production growth. Because development in the region is recent, wells are producing at a high rate, with companies projected to produce 62,000 barrels of oil per day next month, up 5.1% from 59,000 in March.
“Lower oil prices will lead to more expansion of energy market,” said Mekael Teshome, an economist at PNC Financial Services in Pittsburgh.
Consumers within high-production shale regions will also benefit from the drop in oil prices. William desRosiers, a spokesperson for Cabot Oil and Gas Co., says that compressed natural gas (CNG) will save truck drivers an average of $1.89 per gallon: diesel in Susquehanna County costs about $3.89 per gallon, while a gallon of CNG costs $2. The Texas-based company is currently producing 1.5 billion cubic feet of gas per day in the Marcellus region, the second area slated for production growth by the EIA.
The effects of cheap-burning gas in Susquehanna is already felt by consumers like Angel Caceres, a 27-year-old homeowner who became a resident in 2009 after graduating college.
“I’ve saved almost $1,000 on my heating and electricity bills since I moved here,” said Caceres. “My utility expenses have gone down considerably.”
Shutting down under-performing crude oil rigs opens capital investment opportunities for better-performing shale ones.
In February, Radnor-based Penn Virginia saw a 15% increase in stock when hedge fund magnate George Soros, the company’s largest shareholder, announced that the company was looking for a buyer after it incurred a $428.3 million loss in the previous quarter.
“Equity works for companies that can make it through the downturn in commodity prices,” said Troy Eckard of Eckard Global LLC. The company owns stakes in more than 260 shale wells throughout North Dakota.
At the fastest pace in over a decade, U.S. oil producers are distributing stock to investors in order to reduce their debts and sustain drilling while crude oil prices keep tumbling. The universal acceptance of the continued decline in oil prices has pushed producers to turn to the market while interest in shale oil is still relatively high.
“Getting investors interested in buying equity is the best option for U.S. shale,” said Russell Price, a senior economist at Ameriprise Financial. “There is still a bearish outlook.”
When oil prices started to drop last October, few saw issuing new stock as a solution to keeping the shale industry afloat because of dilution. Those worries have been eased by companies like Noble Energy Inc., one of the country’s top three shale operations, which raised $1 billion in the last month by selling 21 million shares.
“We’re expecting the worst, but hoping for the best,” said Price.
Increased efficiency in extraction methods and technologies have also helped shale oil companies streamline production. Pad drilling, the practice of drilling multiple wells from a single surface, has enabled operators to drill in batches. Dividing wells into vertical and horizontal segments shortens cycle time by an average of 40 days, and eliminates the duplicative processes that are incurred by individual drilling programs.
The use of more fracturing sand, which is extracted from silica mines to keep fractures open while gas flows out, is another method that is becoming popular among several players in Marcellus shale. Cabot Oil has increased its sand usage by 71% on a per foot basis – as a result, the company has cut its costs by 32% at the end of 2014.