U.S. shale proves robust at oil under $60

Gas drilling rig
Source: DollarPhotoClub

U.S. shale industry seems to have weathered the storm of low oil prices – with the number of rigs increasing for the first time in seven months. This is despite the oil prices remaining depressed.

As Baker Hughes has revealed in their most recent oil rig data in the United States, a rapid increase in the number of rigs has taken place within the last 7 months. The last time analytics tracked such growth was when oil prices were at $70 per barrel. This time however the price stayed low, at $60 per barrel, but the number of U.S. rigs grew, with 12 new oil rigs within the reported period.

It seems that we are now witnessing a situation which would have taken place sooner or later. Inefficient oil producers have left the market due to the constantly low price, while more efficient shale developers found it possible to modify their technologies and increase the level of productivity.

According to official information provided by Bloomberg, leading U.S. shale developers managed to cut down their break-even points by $15-20 during the last 7 months. It should also be noted that drilling services have become cheaper for major U.S. shale developers. Leading companies now can benefit from huge discounts which vary from 25% to 55% if compared with previous costs. Moreover, the level of competition on the labour market has increased. In other words, leading companies now have a great chance to hire qualified and experienced specialists at a lower price.

There is another point that is worth mentioning. Considering the fact that many shale developers managed to decrease production costs, they will surely continue their growth as the costs are expected to remain at the same level. Lowering exploration costs of unconventionals will make them more competitive with the conventional resources.

A case in point would be Russia, who were rather ambitious when it came to development of several promising Arctic fields in 2014. According to unofficial information, some of those projects could reach break-even point only if the oil price was over $150. On the other hand it should be kept in mind that the most efficient and low-cost fields are close to total depletion. This means that Russian companies will face the necessity of developing other areas, which would call for additional investment and technologies, inevitably leading to higher costs.

In spite of the low oil prices and previous predictions, US shale companies now seem to have a good chance to competitively enter the market along-side Russian, Saudi Arabian and Iranian oil producing companies.

Additional reporting: Dmitrii Zaitsev

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