To access the full paper, download the PDF on the left-hand sidebar.
Introduction
Emerging data on U.S. oil drilling and output show that U.S. shale producers appear to be among the first to respond to the collapse in global crude oil prices. Sharp declines in new production are evident in high-cost plays, while growth in some low-cost unconventional production appears virtually unaffected.
Oil prices shed around half of their value between June and December 2014, falling precipitously after OPEC’s November decision to maintain constant oil production. Saudi oil minister Ali al-Naimi declared that OPEC would defend its share of global crude oil markets from upstart producers, including U.S. shale operators. Two months later, OPEC’s actions appear to be generating the desired effect. New oil production in some U.S. shale plays appears to have been curtailed, especially since November. Signs include shrinking numbers of drilling rigs in operation, fewer wells being drilled, and reductions in the volumes of new oil production coming onstream.
The clearest evidence of decline has emerged from the Permian Basin of Texas and New Mexico. There were steep drop-offs in the number of rigs in operation and in the drilling of vertical wells. As a result, projected new oil flow, especially from vertically drilled wells, has decreased.
The picture is far from universal, however, and important counter-cases bear mention. Perhaps the most contrarian is South Texas’ Eagle Ford shale, where data from the Austin-based analytics firm Drillinginfo show rising numbers of wells drilled and increasing volumes of oil produced, even between the months of November 2014 and January 2015, as bad news spread across the global oil sector.
It bears emphasizing that the slowdown in growth, where it applies, does not mean that overall U.S. oil production has decreased. It means that production growth is occurring at a decreasing rate.
This material may be quoted or reproduced without prior permission, provided appropriate credit is given to the author and Rice University’s Baker Institute for Public Policy. The views expressed herein are those of the individual author(s), and do not necessarily represent the views of Rice University’s Baker Institute for Public Policy.
