Kemp: OPEC Has Stalled The Shale Revolution

Kemp: OPEC Has Stalled The Shale Revolution
The resilience of US shale producers has surpassed all expectations as they have wrung extra efficiencies out of their operations and pulled rigs back to prolific areas.


John Kemp is a Reuters market analyst. The views expressed are his own

LONDON, Oct 20 (Reuters) – The resilience of U.S. shale producers has surpassed all expectations as they have wrung extra efficiencies out of their operations and pulled rigs back to the most prolific sections of existing plays.

The shale sector's ability to cut costs and sustain their output in the face of plunging prices has been extraordinary and testament to the entrepreneurial spirit and technical skill of the independent producers.

Shale producers are justifiably proud of their ability to survive the perfect storm that has hit their industry since the middle of 2014.

But it should not disguise the fact that the collapse in oil prices has paused the shale revolution, with the sector's focus shifting from growth to survival.

The revolution cannot be reversed. Techniques once mastered will not be unlearned. And adversity has forced shale drillers to become more efficient.

If and when prices rise, shale output is very likely to start increasing again, and from an even lower cost base.

For the time being, however, lower prices have stunted shale's growth in the United States and slowed its spread around the rest of the world.

North Dakota

In North Dakota, the oil boom has stalled as low prices have brought formerly rapid production growth to a standstill since the end of 2014.

State oil output grew at a compound average rate of just 0.38 percent per month over the last 12 months, according to records published by the Department of Mineral Resources.

By contrast, production increased at a compound rate of 2.37 per month in the 12 months before prices started to crash in June 2014 (

Output has been flat at 1.2 million barrels per day (bpd) since the end of 2014, the deepest and most protracted pause since the shale revolution began in the state in 2005 (

If production had continued rising on its pre-June 2014 trend, output would now be 330,000 bpd higher at 1.52 million bpd.

Some analysts question whether the Organization of the Petroleum Exporting Countries (OPEC) is winning its price war against high-cost producers.


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Stephen Harris, CPL | Oct. 20, 2015
Mr. Kemp wrote a very common sense and articulate post. As a third gen oilman, I might add that the take-aways form 86 were threefold - (1) lower your lifting costs below what SA and OPEC can force the market down to; (2) increase your volume of low lifting cost crude; and (3) do not go into debt. Those that practice the lessons learned, will survive this downturn and prosper later. I might also add that Mr. Kemp may have over-looked about 800 MMbbls now in floating storage and with traders (looking for homes). That has to burn off, as well as the new production from Iran, Iraq and Kurdistan, not to mention Brazil, Angola, Nigeria, as well as from Russia and others. I completely agree that the destruction cycle has to run its course, and I have been expecting the WTI price to hit $20 / bbl soon. The sooner the better for this phase to end so the recovery can start. Finally, a 2 - 3 MMbbl overhang is not that much today, given the annual demand, as it was in 86, with about 30% less global demand then than today (not to mention the global field declines which are accelerating rapidly today).

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