Wednesday, August 27, 2014

US Shale: Innovation race against exhaustion

FT offers an analysis setting out how oil companies active in US shale oil extraction find new ways to improve production in existing wells, and increase there expected recovery volumes. It is pointed out that without such technical innovation oil wells would exhaust very rapidly and with that the entire US shale boom. How much innovation is left is anyone's guess. Companies are optimistic. Some analysts see risks in the required price (below $100/barrel many wells would not be profitable) and the high decay rate of shale well production, despite technical innovation. At the same time, much of the rapid production growth is made possible through outside finance, rather than earnings through production. A decline in the opportunity to attract outside finance is therefore a risk for further growth. Now, however, the FT reports that this risk is diminishing as companies are able to finance their capital expenditures more and more from earnings of production.

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