Bloomberg: The bear market in oil has analysts reassessing the U.S. shale boom after five years of historic growth. The U.S. benchmark price dropped to $79.78 a barrel on Oct. 16, the lowest since June 2012.”
“At that level, one-third of U.S. shale oil production would be uneconomic, analysts for New York-based Sanford C. Bernstein & Co. led by Bob Brackett said in a report yesterday. Drillers would add fewer barrels to domestic output than the previous year for the first time since 2010, according to Macquarie Group Ltd., ITG Investment Research and PKVerleger LLC.
Horizontal drilling through shale accounts for as much as 55 percent of U.S. production and just about all the growth, according to Bloomberg Intelligence. The Paris-based International Energy Agency predicted in November that the U.S. would pass Russia and Saudi Arabia to become the biggest producer in the world by 2015. Though some forecasts show oil rebounding or stabilizing, any slower increase in U.S. output would shake perceptions for the global market, said Vikas Dwivedi, an oil and gas economist in Houston for Sydney-based Macquarie.
“It would reshape the way everybody would think about oil,” Dwivedi said.
Daily domestic production added a record 944,000 barrels last year and reached a 29-year high of 8.95 million barrels this month, according to the Energy Information Administration, the U.S. Department of Energy’s statistical arm.
Output, much less growth, is difficult to maintain because shale wells deplete faster than conventional production. Oil production from shale drilling, which bores horizontally through hard rock, declines more than 80 percent in four years, more than three times faster than conventional, vertical wells, according to the IEA. New wells have to generate about 1.8 million barrels a day each year to keep production steady, Dwivedi said.
At $80 a barrel, output would grow by 5 percent, down from a previous forecast of 12 percent, according to New York-based ITG.
At $75 a barrel, growth would fall 56 percent to about 500,000 barrels a day, Dwivedi said. Closer to $70 a barrel, the growth rate would drop to zero, he said.
In North Dakota’s Bakken shale, oil at $70 a barrel could cut production 28 percent to 800,000 barrels a day by February from the 1.1 million barrels a day that was pumped in July, according toPhilip Verleger, who was an economic adviser to President Gerald Ford and the director of the Office of Energy Policy for President Jimmy Carter.
….Investors are more bearish. They’re holding the highest number of short positions on WTI in 22 months, U.S. Commodity Futures Trading Commission data show.
….Drillers could also maintain output by improving efficiency. Each rig in the Permian Basin of West Texas will add a record 176 barrels of new oil a day in November, up 20 percent from a year previous, according to an EIA estimate. In the Eagle Ford, each rig is getting 540 new barrels a day, also up 20 percent.
The cost of completing a well in the Leonard shale of the Permian’s Delaware Basin fell to $5 million this year, compared with $6.9 million in 2011, according to Houston-based EOG Resources Inc. (EOG)
Companies could also drill wells closer together, called downspacing. The practice is relatively new in horizontal drilling, and there’s a risk neighboring wells will interfere with one another. So far, production results have been mixed.”
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