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(John Kemp is a Reuters market analyst. The views expressed are his own)
By John Kemp
LONDON, Dec 10 (Reuters) - If the U.S. shale boom is to slow in response to the fall in oil prices, the impact will be felt hardest in just five states.
Texas, North Dakota, Oklahoma, New Mexico and Colorado together account for almost 98 percent of the total rise in U.S. oil output since the beginning of 2008.
Enormous output increases from Texas (2.2 million barrels per day, b/d) and North Dakota (1.0 million b/d) dominate the countrywide picture.
But Oklahoma, New Mexico and Colorado have collectively contributed almost an extra half million barrels per day compared with January 2008, according to the U.S. Energy Information Administration.
Output in the rest of the union has been broadly unchanged, with small production increases from states such as Wyoming and Kansas offset by declines from Alaska and California.
If shale growth is to slow to avoid potential oversupply in 2015, the slowdown must come from lower levels of drilling activity and production growth in these five states.
There is no way to rebalance the oil market without slower growth in output from the big two producers but the other three must also plateau or fall (link.reuters.com/gek63w).
So far, there is no sign of a slowdown in drilling in the frontier areas More than 380 rigs were operating in Oklahoma, New Mexico and Colorado last week, the highest number since 2008, according to Baker Hughes, the oilfield services company.
But drilling on the frontier of the shale revolution, where costs are relatively high and the quality of the shale is variable and often poorly understood, is highly sensitive to prices.
The last time prices crashed, in 2008/09, the number of operating rigs fell by two-thirds within the space of 17 months, from 430 in May 2008 to just 156 in October 2009.
If rigs are to be idled, at least 100-200 are likely to be de-activated in these areas. For the moment, rigs will complete existing work programmes, which have already been contracted, but once current programmes have been completed the next round are likely to be for far fewer wells.
Shale producers are likely to pull back from high-risk, high-cost plays to focus on areas where the geology is better known, wells are more productive and costs are lower. On Monday, ConocoPhillips illustrated precisely this strategy when it announced its capital spending plans for 2015.
The company will cut its development drilling budget to $5 billion in 2045, from $6.5 billion in 2014. Conoco "will continue to target the Eagle Ford and Bakken" but "will defer significant investment in the emerging North American shale plays, including the Permian, Niobrara, Montney and Duvernay," the company said in a press release.
The Permian Basin has long been a focus of the conventional Texas oil industry, but is less mature as a shale play than Eagle Ford. Niobrara is located mostly in Colorado with smaller sections under Wyoming, Kansas and Nebraska. Montney and Duvernay are located in the Canadian provinces of Alberta and British Columbia.
In a lower price environment, producers will be forced to concentrate on the lowest-risk and/or lowest-cost plays, which in practice means pulling back to the core parts of the Bakken and Eagle Ford and slashing drilling programmes elsewhere.
For companies with lots of prime acreage at the heart of these mainstream plays, the fall in prices will be painful but should be survivable.
For rivals on the periphery of Eagle Ford and Bakken, or with acreage in more frontier plays, the next year will be a test of endurance. Some will almost certainly fail or be taken over.
The plunge in oil prices is often portrayed as a straightforward struggle for market share between U.S. shale producers on the one hand and OPEC led by Saudi Arabia on the other.
In practice, the battle is more complicated, and all sorts of other relatively high-cost oil producers and projects now find themselves caught in the cross-fire:
* Conventional projects in the North Sea, the Arctic and in deepwater off the coasts of Latin America and Africa are all under threat if construction has not already started.
* Megaprojects, those with capital budgets of more than $1 billion, are all now under review by the major international oil companies.
* Enhanced oil recovery (EOR) schemes, oil sands developments in Canada and unconventional plays such as Argentina's Vaca Muerta all risk being postponed or scaled back if low prices persist.
The shale revolution has been so disruptive for the industry precisely because projects have erupted in the middle of the cost curve.
Financial calculations have been scrambled for a broad range of medium and high cost projects, which have costs overlapping or higher than the shale formations. Many drillers have borrowed heavily to finance their programmes and will struggle to maintain the pace of investment and stay out of default.
North American shale producers themselves are not a homogenous group. Breakeven prices for new wells are estimated at anything from $40 to $80 per barrel or more, depending on the play, and even the acreage within the play.
With prices now sitting squarely in the middle of this range, shale producers face a fratricidal battle for survival among themselves.
Plains Marketing, for example, was posting offers of around $60 per barrel for Eagle Ford and West Texas crude on Tuesday, $60 for Oklahoma Sweet, $60 for New Mexico, $50 for Colorado and sub-$50 for North Dakota Sweet.
At these prices, the best acreage will remain just about profitable, but more marginal acreage and plays are in trouble. (Editing by William Hardy)