Who’s winning: OPEC or US shale oil producers?

By The Bakken Magazine Staff | August 14, 2015

The widely-held belief that Saudi Arabia and other members of the Organization of Petroleum Exporting Countries have chosen not to curtail production in an effort to squeeze market share out of U.S.-based shale players is true, according to John Auers, executive vice president of the Dallas-based consulting engineers firm. The truth about the situation, Auers also believes, is that “it appears that the U.S. industry might be winning the battle with OPEC.”

Earlier this year, Auers and John Mayes, director of special studies, co-authored a piece that outlined their beliefs about the impact of OPEC’s market share strategy on U.S. shale producers. The piece detailed the reality that despite drastically reduced rig counts due to the low oil price created by OPEC’s internal production decisions, oil production in the U.S.—including the Bakken—has sustained itself. “The industry has been able to fend off the attack of drastically lower prices and even continue to grow production,” they wrote. Saudi Arabia was attempting to reenact the same strategy it used in the early ‘80s, Auers said.

“You can’t blame them for trying the same strategy, but this is a different animal,” he said. “This is easier and less costly. You can produce a lot of oil at $60 to $70 a barrel. That’s what we’re learning, and we’re still improving.”

Although shale oil producers are just now proving they can continue retrieving $60 oil, there are other reasons than just OPEC’s decision-making for low oil prices. The deregulation of the oil markets by President Ronald Reagan in the ‘80s helped to establish upstream and downstream infrastructure along with the skilled labor and workforce needed for oil production, the Dallas-team said.

Today, oil production is at record levels in the Bakken, but it may not stay that way. In the Bakken, oil production will decrease to roughly 950,000 bopd sometime in the next two years. By 2025, production will increase to between 1.5 million to 1.6 million, however.

The price point for constant oil production should be between $60 and $70. Auers believes it will be $70.