The US Oil Boom Will Continue Despite Low Prices

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Michael Bastasch DCNF Managing Editor
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The price war between OPEC and U.S. oil companies has pushed crude oil prices below $60 per barrel for the first time since 2009, sparking fears that the U.S. energy boom could be in jeopardy.

But government energy experts predict the U.S. oil boom will continue despite the record-low prices for crude oil.

The Energy Information Administration predicts that while some oil plays will likely experience production slowdowns, overall U.S. oil production “to average 9.3 million barrels per day (bbl/d) in 2015” which is “up 0.7 million bbl/d from 2014, but down from expected growth of 0.9 million bbl/d.”

“Many companies will redirect investment away from marginal exploration and research drilling and into core areas of major tight oil plays,” EIA reports. “However, projected oil prices remain high enough to support development drilling activity in the Bakken, Eagle Ford, Niobrara, and Permian Basin, which contribute the majority of U.S. oil production growth.”

“However, all of the decrease in forecast production growth comes in the second half of 2015,” EIA notes, adding that “this forecast remains particularly sensitive to actual prices available at the wellhead and drilling economics that vary across regions and operators.”

EIA’s forecast is based on oil production levels during the 2008 to 2009 recessions when crude prices fell below $40 per barrel for a prolonged period of time as the global economy contracted. Hydraulic fracturing, or fracking, of tight oil plays, however, was only in its testing phase during this recession and was a more expensive technology.

During the recession, “production continued to increase until November 2008, when WTI prices dropped below $57 per barrel” and then the “number of projects that were interrupted increased significantly,” notes EIA. The number of drilling permits fell “73% from December 2008 to July 2009,” notes EIA with “the number of rigs declining 62% from November 2008 to May 2009, and the number of spuds declining 55% from November 2008 to April 2009.”

But while the number of permits, rigs and spuds fell during this time, production only fell 13 percent from November 2008 to January 2009 — it resumed its boom soon after that.

More than half of U.S. oil production now comes from fracking tight oil plays and the costs have likely come down a bit from their 2008 to 2009 levels before the practice was widely commercialized.

Crude oil prices have fallen 31 percent since June 2014 — as opposed to the 71 percent drop in prices experienced during the recession. Even though oil prices have not slipped as far as they have in the past, some oil companies are feeling the pain.

“The number of rigs drilling for oil in North Dakota and parts of Texas has started to edge down, new drilling permits have dropped sharply since October, and many companies say they are going to focus on their most profitable wells,” reports The Wall Street Journal.

ConocoPhillips, one of the country’s largest drillers, said it was going to spend 20 percent less on drilling wells in 2015 and focus on its best oil plays, notes WSJ.

But it’s not all doom and gloom. Despite the slowdown in permits and drilling activity, oil production is still on the the rise in places like North Dakota. EIA data shows that oil production in the state rose 5 percent from August to September despite falling crude prices.

Last week, U.S. crude production hit 9.1 million barrels a day — the highest level since 1983. This, combined with slower economic growth in Europe and Asia, have contributed to plummeting oil prices.

Pipeline and oil storage company Enterprise Products Partners LP told the WSJ that “the average well in many shale formations aren’t profitable at $60 oil” but added that high grade wells can withstand lower prices. “Wells in South Texas are profitable at prices of $30 a barrel, while the best in North Dakota’s Bakken area can only withstand a drop to under $50 a barrel,” EPP told the WSJ.

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