Woodmac ask:
Whereas others highlight increasing efficiency from opening wells:
The two data points clearly aren’t in conflict they just highlight how complex productivity issues are. Productivity is just a input/output ratio and there is ample evidence of declining tight-oil rig costs for example as manufacturers move down the experience curve which would simply change the inputs in the numerator.
My only view on this is that the sheer scale of the investment going into shale will see productivity improvements but they might not always be constant. To see how far the general consensus has lagged actual productivity improvements this graph from a reputable investment bank in January 2018 that shows where they thought the breakeven level would be:
With this comment:
Shale is now cash flow breakeven at $25 a barrel. The CapEx number doesn’t make this a clean comparison with the graph above but focus on cash flow breakeven because that is all the investors providing the finance seem to worry about.
What isn’t going to happen here is that E&P companies are going to wake up one day and reverse the multi-billion investments they have in shale. Whether future productivity improvments follow some exponential Moore’s Law, or a more likely non linear process, remains to be seen. But the chance of there being some sudden realization that shale production is subject to rapidly diminishing economic returns strikes me a low probability event.
