Low oil prices and the real impact on shale oil production

The use of hydraulic fracturing to produce oil from shale is facing some recent changes and new challenges. The recent shale oil boom is slowing down, even reversing in some markets.
The prices for oil declined from approximately $100 per barrel in July 2014 to approximately $40 per barrel in March 2015 (and recovered to about $60 per barrel in June).
The lower prices, while good news for consumers, have caused producers to scale back new well development and to shut down some rigs already operating, leading to some lost energy-related jobs.
Production layoffs
In the last several months, oil production and services companies operating in areas such as North Dakota’s Bakken and Texas’ Eagle Ford plays have laid off more than 70,000 people.
More than 40,000 people were laid off in Texas alone, and worldwide job loss in the industry is projected to reach at least 100,000 people.
Major oil producers have taken significant balance sheet write-offs, and the number of drilling rigs is down more than 50 percent compared to last year’s peak rig count.
A silver lining
In spite of the recent turn of events, the indicators are better than most people think.
■ In terms of production, the Energy Information Administration anticipates steady growth in oil production through at least the end of the decade, even in the worst-case scenario.
■ U.S. oil production averaged 8.7 million barrels a day in 2014. Through February 2015, it is already at 9.2 million barrels per day. The forecast for calendar year 2015 is growth of approximately 1 million barrels per day.
■ The best production fields in the U.S. are still economical at $50 per barrel because oil producers are finding new ways to drive efficiency and productivity per well. At $60 per barrel, many producers can still realize a handsome profit. Areas such as the Marcellus shale play in Pennsylvania, Ohio and West Virginia will gradually see more activity because those fields are profitable at $50 to $55 per barrel.
■ The technology is much better. The rigs being used are more efficient and technology improvement is driving down break-even costs. Therefore, U.S. producers are likely to maintain high output levels even with fewer rigs. For example, as technology continues to get better and new techniques such as “refracking” are becoming popular, new job opportunities will be created and new efficiencies will be uncovered.
Refracking (going into an existing well, cleaning up, cleaning out and performing a new frack) can cost significantly less than drilling a new well, which will enable producers to drill for oil and prosper at much lower prices.

Job totals will slowly recover. If methods for keeping costs down and being more efficient continue to develop, oil and gas from shale will remain a vibrant part of our economy, even if the price per barrel continues to be well below recent norms.

Clark-Reliance is a global, multi-divisional manufacturing company with sales in more than 80 companies, serving the power generation petroleum, refining and chemical processing industries.
Matthew Figgie is also chairman of Figgie Capital and the Figgie Foundation. Rick Solon has more than 35 years of experience in manufacturing and operating companies. www.clarkreliance.com
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