In 2014 Saudi Arabia engineered what might kindly be called a collapse in oil prices by inexplicably trying to gain market share by cutting revenues nearly in half. As prices plummeted, so too did hopes for American shale oil production, which was curtailed to cut costs. But a strange thing has happened.
Even before OPEC belatedly decided to reverse the wrongheaded Saudi policy, American shale drillers were finding ways to cut costs and increase their own productivity. With a comeback in oil prices, even more drillers have joined a movement that has come to be known as Shale 2.0.
Now, reports Erin Ailworth in The Wall Street Journal, shale oil producers could become a powerful counterweight to OPEC, challenging its control of the oil market.
Now, with oil currently trading near $50 a barrel, these producers are trying to unleash fracking 2.0, the next step in the technological transformation of the sector that is aimed at extracting oil even faster and less expensively to eke out profits at that level.
The promise of this new phase is potentially as significant as the original revolution. If more producers can follow EOG’s lead and profitably ramp up output from shale drilling even at lower prices, the sector could become a lasting force that challenges OPEC’s ability to control market prices.
For a sector in which the previous era’s success was tied to the rapid expansion of output, the shift toward finding more cost-effective ways to get to that oil and gas is full of challenges. When oil prices dropped, critics wondered if the shale industry—rife with heavily indebted companies that had never turned a profit—would collapse.
EOG, with its longtime focus on low-cost production, is the producer many hope to emulate, thanks to the iSteer app and dozens of other homegrown innovations. Dubbed the “Apple of oil” by one analyst, EOG made its name as a pioneer in horizontal drilling and in finding ways to get oil out of shale—often dense layers of rock that hold oil and gas in tiny pores—a feat many once believed impossible.
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