Efficiency Gains Offer Hope to US Shale Firms

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With no control over oil prices, US tight oil producers are trying to remake themselves to operate profitably in a lower commodity price environment. Sharply lower oil services costs have helped considerably, but such relief may be fleeting if producers increase drilling and well completion activity in response to the recent rally in US benchmark West Texas Intermediate (WTI) to around $60 per barrel. So producers are also looking internally for more sustainable ways to reduce operating expenses and improve efficiency. Oil services costs are down some 15%-20% year-to-date in response to the more than 50% drop in the US rig count since early December. Most producers did not expect such savings to materialize until the end of the year, leading some to say that $65/bbl WTI is high enough for them to increase drilling and completion activity (PIW May 18'15). Reducing other operating costs is harder, but producers are making some headway. Marathon Oil cut its North America E&P cash production costs to $7.94 per barrel of oil equivalent in the first quarter, down by 17% from last year's fourth quarter and by 28% year-on-year. It cites a host of cuts to operating expenses, including workforce reductions and coordinated deployment of contract labor, as well as focusing on compressor utilization, aggregating water production into gathering systems and optimizing its chemical programs for fracking. Occidental captured more than $400 million in cost-savings last quarter, with 30%-40% of full-year 2015 reductions expected to be unrelated to oil price changes. Most of ConocoPhillips' $1 billion reduction in operating expenditure by 2016 will, the company predicts, be "commodity agnostic."

Exploration, Oil Supply, Shale
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