Espen Erlingsen, partner and head of upstream research at Rystad Energy spoke to Pipeline Magazine’s Nadia Saleem about the United States shale play. Original article published by Pipeline Magazine on 24th May, 2018, click here to see the original article.

What is the trend in U.S. production grow and what is the main driver?

U.S. oil production has been on the rise since 2008. The driver for this has of course been the revolution within the horizontal fracking technology. In 2017, total U.S. tight oil (shale) production was at 5.1 million Barrels of oil equivalent per day (boe/d). This is a remarkable growth considering that back in 2010, US tight oil production was close to zero.

Rystad Energy expects that the U.S. becomes the largest producer globally this year, surpassing both Saudi Arabia and Russia. We have already seen the global impact of this as the U.S. has now started to export oil in the range of 1-2 million boe/d.

By 2020, Rystad Energy expects U.S. oil production to reach 13 million boe/d compared to 9.3 million boe/d last year.

Where does the U.S. production growth come from?

The growth is by far driven by tight oil and by increased investments for this resource. Last year, total tight oil investments were up 50 per cent, and this year the spending is further growing by around 20 per cent. This activity will push very strong growth rates, especially within Permian. The combined tight oil production is expected to grow by 1.4 million boe/d over the next four years, where Permian (both Midland and Delaware) will contribute with approximately 800 000 boe/d, making it the largest contributor.

Who are the key shale players?

Traditionally, the key shale players have been independent U.S. companies, such as EOG, Anadarko, Chesapeake and Pioneer Resources. However, over the last couple of years the play landscape has changed since the Majors have taken a more active role within shale. ExxonMobil’s acquisition of BOPCO illustrates that this super major is committed to tight oil activity.

How much are the breakeven prices coming down in tight oil?

Over the last four years, we have seen both improvements in well productivity as well as lower costs per well. The improved productivity has been driven by new designs of the wells and high-grading of the acreage. On average, the estimated resources per well has increased from 235,000 boe to 430,000 boe from 2014 until 2017. During the same time period, the average well cost has decreased by 35 per cent. The decrease in well cost is driven by more efficient operations and a lower unit price within the industry. These two effects have caused the average WTI breakeven price for tight oil to drop from US$95 per barrel (bbl) to $55 per barrel. However, last year we saw that the improvements in breakeven prices were flattening out, and only improved slightly by 2 per cent compared to 2016. 

How competitive is shale compared to other sources of supply?

This is a good question. In terms of breakeven (BE) prices it is not only tight oil that has improved over the last four years. Also offshore has seen a considerable reduction in its BE. According to Rystad Energy, we still see the average tight oil BE price to be higher than offshore and conventional onshore. In comparison to the BE prices for tight oil of $55/bbl, the current price for offshore deep-water is at $50/bbl, while conventional onshore is below $40/bbl.

One thing that makes shale attractive is the short pay-back time on the investments. Typically, you can recover investments after 1-2 years, while with offshore you need to wait on average ten years to recover investments completely. It just takes many years to establish the infrastructure for offshore developments compared to what we experience in tight oil.

What is the hottest shale play right now?

The shale play everyone speaks about is Permian (Midland and Delaware). The main reason for the attractiveness of this play is the number of drilling locations, and high oil content. Investments in these plays grew 85 per cent in 2017, and is expected to further grow with 32 per cent this year. The main companies operating in Permian are Pioneer Resources, EOG, Chevron and Oxy.

Is the shale producer earning money these days? How is the cash flow for companies?

For a long time, the shale producer was not able to generate free cash flow. The cash from operations was not enough to cover the large investment budgets for the tight oil producers. To finance the mismatch between cash from operations and investments, the producers had to sell non-core assets and raise debt. However, in the last quarter of 2017, we saw that for the first time investments equalled the cash flow operations, and we expect this trend to continue in 2018 as oil prices remain high.

How long can the shale development continue?

Tight oil is still in an early phase, and still shows a large growth potential. Rystad Energy estimates that the total recoverable resource for U.S. tight oil is 245 billion barrels. Out of this only 6 per cent is produced. This is also reflected in the remaining drilling inventories. For all the key tight oil plays, the producers can continue to drill for decades and remain within the core acreage.


Rystad Energy follows tight oil activities in great detail. Every single tight oil well in North America is analysed in terms of production and profitability. In addition, the company follows the E&P companies’ communication and their activity at asset level. Based on this, Rystad Energy develops its forecast of more than 2,000 unique acreage position in North America. It arrives at its total market outlook by adding this up.

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