Except for a small drop in the amount of oil produced in 2016, with return to the upswing in 2017, American production has been on a steady increase ever since 2008. Even during the 2014-2016 price crash, U.S. E&Ps hunkered down, strengthened their balance sheets, made technological leaps and kept on producing oil and gas—without depending on the reappearance of $100-per-barrel oil prices.

America Is Equipped to Handle the OPEC-Russia Spigot

Courtesy of Anadarko


Energy lawyer Justin T. Stolte told Oil & Gas 360® that after 2014, public and private investors have been cautious, with “a laser focus on results and healthy financials.” Stolte went on to say that even though oil prices have recovered, there is a cautious optimism, and companies want to avoid pitfalls experienced during the crash.

The United States has a robust capital cycle with a healthy stream of investment. Apollo topped the private equity leaderboard in 2017 with its ninth fund at $24.6 billion. The previous record was held by Blackstone Group LP from 2005 to 2007 at a weighty $21.7 billion.

Investment directly affects a nation’s ability to produce oil and gas. The EIA reported that without international oil companies and foreign investors, Iran’s production cannot grow, because only local companies can operate in the area.

International companies bring cutting-edge technologies and top-shelf employees to the table. But with sanctions reimposed, Iran and fellow OPEC member Venezuela can’t take a seat.

Technology and infrastructure

From a technological standpoint, modern rigs have become quite effective, yielding 3.15 times more production than rigs back in January 2014.

America Is Equipped to Handle the OPEC-Russia Spigot

Source: EnerCom Analytics

Instead of running 2,826 ‘old-technology’ rigs that were used before 2014, U.S. shale developers have learned how to use only 898 modern rigs in the major shale basins to accomplish the same amount of production as the larger number of drilling rigs that would have been common before the downturn.

E&Ps have been using longer laterals while decreasing cost-per-foot costs. Investing in infrastructure such as water, oil and gas takeaway has also helped companies reduce costs. WildHorse Resource Development Corporation (ticker: WRD) estimates that by using in-basin sand, each well will save approximately $400,000 – $600,000.

Unsurprisingly, WildHorse and practically every other shale player has been developing newer and better well designs, increasing ultimate rates of recovery while keeping costs down. As shown in the image below, the pounds per foot of proppant has increased more than twofold from Generation 1 to Generation 3 designs, a remarkable 1,500 lbs/ft to 3,700 lbs/ft.

America is Equipped to Handle the OPEC-Russia Spigot

WRD Eagle Ford Gen 3 Design, May 2018

The gains made by efficient rigs has allowed companies to drill more wells. Takeaway capacity is racing to catch up with the production boom, with new pipeline open seasons locking in producers.

Shale revolution

The shale revolution has transformed the American energy industry, making the U.S. the world’s largest producer of hydrocarbons. The country has now retained this crown for five years in a row, surpassing both Russia and Saudi Arabia.

The U.S. produced just under 30 MMBOEPD in 2017, an all-time record.

In the past ten years, American production of oil and gas has grown by almost 60%. The shale revolution has marked the most rapid growth in U.S. oil and gas output since the 1950s, when the U.S. first began producing natural gas in large volumes.

America is Equipped to Handle the OPEC-Russia Spigot

Even with OPEC and Russia hinting at raising production by a million barrels, to be announced possibly at the next OPEC meeting on June 22, 2018, American E&Ps are prepared.

Oil play breakevens, according to KLR Group Head of Research John Gerdes, have fallen significantly in the past three years and all major plays are breaking even at current prices.

Data by the World Bank and Rystad Energy shows that the U.S. shale average breakeven oil price has fallen dramatically from Q1 2013 to Q1 2017.


America is Equipped to Handle the OPEC-Russia Spigot

U.S. Shale Average Breakeven Oil Price

The Federal Reserve Bank of Dallas reported in April 2018 the breakeven prices for new wells by basin.

America Is Equipped to Handle the OPEC-Russia Spigot

Breakeven by Basin, April 2018

Prepared for the future

Based-on the Dallas Fed’s most recent breakeven survey, oil prices would have to drop below $47 a barrel before real panic set in. Data gathered from Statista shows since 2014, this has only happened once in 2016 at $43.15 per barrel. Even the $44.59 price drop from 2014’s $93.25 to 2015’s $48.66 price point is above this $47 breakeven.

America is Equipped to Handle the OPEC-Russia Spigot

WTI Five-Year Average

After the 2014 oil-price crash, U.S. companies prepared for the future by investing in new technologies and infrastructure – resulting in lower capital expenditures and higher returns, strengthening balance sheets. Ultimately, the return on investment created one of America’s greatest production booms seen domestically or internationally. OPEC production cuts or not, the American shale revolution will continue.

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