OPEC's Plan to Kill Shale: One Year Later

It's been one year since OPEC tried to force the hand of U.S. shale oil by announcing they would not decrease production in order to curb the falling price of crude. Related: OPEC Challenges Shale Oil Drillers

OPEC initiated this Thanksgiving Day game of ‘chicken’ in order to force U.S. shale drillers to fold in the face of falling profits.

Oil Prices Plummet

Immediate response to OPEC’s announcement included plunging energy stocks and crude oil prices and a resolve from U.S. producers to dig in and ride it out. Oil prices have remained unstable all year and have remained at less than 45% of their peak value of June 2014. Today, Bloomberg reported that WTI crude was at $41.55, while Brent crude stood at $44.24, down from $107.26 for WTI and $115.06 for Brent in June 2014.

Oil & Gas Producers Struggle

The prolonged slump in oil prices continues to take its toll. U.S. shale oil producers have reported steep improvements in the productivity of the rigs they use and the wells they drill, but even this cannot save them from the financial constraints they face.

  • Investment in new oil projects plunged with $200 billion of investments in new oil projects being deferred this year, and upward of $1.5 trillion in future projects at risk of not being developed due to challenged economics at current oil prices.
  • In the first half of 2015, U.S. shale producers lost more than $30 billion
  • Lower prices have forced many oil companies to cut their workforces. Employment in the oil and gas sector has fallen by 5% in since November 2014, in stark contrast to the 5.1% improvement in total U.S. employment. Swift Worldwide Resources reports that more than 200,000 workers in the global oil and gas industry may now have lost their jobs following the collapse in crude prices.
  • Bankruptcies and restructuring are on the rise with almost two dozen oil & gas companies filing this year.
  •  The EIA reported that U.S. oil production fell in May and June, with some analyst predicting continued drops, as companies are unable to pay for more drilling and well completions.

Is Shale Dead?

The year has been brutal, but shale is hardly dead.  While it appears that OPEC's plan may be working, some analysts believe that these events have made the shale energy stronger, citing improved technology and innovation.

According to the Motley Fool analysts, "Another important development over the past year has been the dramatic uptick in well performances thanks to increased sand volumes being pumped into wells. Bakken shale driller Whiting Petroleum for example, has experienced a 44% improvement in its average 30-day production rate over wells completed in the prior quarter. This was after Whiting Petroleum shifted to an enhanced completion technique whereby it increased its average sand volume per well from 3 million pounds to 5.2 million pounds.