Leaner and meaner: U.S. shale greater threat to OPEC after oil price war

Wed Nov 30, 2016 11:34am EST
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By Catherine Ngai and Ernest Scheyder

NEW YORK/HOUSTON (Reuters) - In a corner of the prolific Bakken shale play in North Dakota, oil companies can now pump crude at a price almost as low as that enjoyed by OPEC giants Iran and Iraq.

Until a few years ago it was unprofitable to produce oil from shale in the United States. But the steep slide in costs has U.S. shale operators poised to capitalize on Wednesday's decision by the Organization of the Petroleum Exporting Countries to cap output for the first time in eight years. [nL8N1DV1UH]

In effect, even as OPEC has decided to reduce output to try to boost prices, that may end up being undermined by a potential increase in U.S. production.

OPEC ministers agreed to reduce production by around 1.2 million barrels per day, bringing an end to a free-for-all drilling era that saw global oil prices fall by more than half in the last two years.

In shale fields from Texas to North Dakota, production costs have roughly halved since 2014, when Saudi Arabia signaled a price war in an attempt to drive higher-cost shale producers out of the market.

Rather than killing the U.S. shale industry, the ensuing two-year price war made shale a stronger rival, even in the current low-price environment.

In Dunn County, North Dakota, there are around 2,000 square miles where the cost to produce Bakken shale is $15 a barrel and falling, according to Lynn Helms, head of the state's Department of Mineral Resources.

"The success in Dunn County has been fantastic," said Ron Ness, president of the North Dakota Petroleum Council.   Continued...

Pumpjacks and other infrastructure for producing oil dot fields outside of Watford City, North Dakota, U.S. on January 21, 2016. REUTERS/Andrew Cullen/File Photo