Podcast
Upstream, Exploration & Production
North American Energy Part 2: The Industry Has Matured
Technology continues to impact the shale revolution and change economics.
About the Podcast
Technology continues to impact the shale revolution and change economics.
North American Energy Part 2: The Industry Has Matured

Over the last decade, crude oil production has nearly doubled, and natural gas production has increased by over 40%—all of this driven by shale and tight resource development. Tight oil and gas production right now accounts for over 50% of US production. As a result, the US has become the world’s top producer of oil and natural gas for the last five years. Horizontal drilling and hydraulic fracturing have also changed the industry’s cost structure. Cost structures went through another mutation in 2014 as commodity prices declined.

Throughout the downturn, US onshore companies reexamined their operations really with a focus on increasing efficiencies and reducing costs. As a result, many basins in the US are now economic at levels not previously seen, and are displacing production volumes around the world. Within the US, the Permian Basin and STACK are generally considered the most economic, with the lowest break-even costs. For gas-focused basins, the Marcellus is generally considered the most economic. I think it’s important to note that as much as we want to think about shale basins being composed of perfectly consistent layers of rock, acreage quality can vary within each of these basins. The best operators have been able to identify and develop these sweet spots.

From a high level, cost structure is extremely important within the industry, and really drives development activity. US production growth has been driven by a combination of increased drilling activity and increased productivity. The oil rig count peaked in the second half of 2014 before plummeting roughly 80%. The count has since rebounded by 150%. Oil-focused drilling activity is concentrated in the Permian Basin, which accounts for roughly 55% of the oil rig count. The gas rig count peaked in the second half of 2011 before plummeting 90%. The count has since rebounded by roughly 125%. Gas-focused drilling has been concentrated in the Marcellus and Haynesville.

© 2018 Miller/Howard Investments.

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Opinions and estimates offered constitute Miller/Howard Investments' judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. All investments carry a certain degree of risk, including possible loss of principal. It is important to note that there are risks inherent in any investment and there can be no assurance that any asset class will provide positive performance over any period of time. The material may also contain forward-looking statements that involve risk and uncertainty, and there is no guarantee they will come to pass.

The information above is from sources deemed to be reliable and is provided strictly for the convenience of our investors and their advisors. These materials are solely informational. Legal, accounting and tax restrictions, transaction costs and changes to any assumptions may significantly affect the economics of any transaction. The information and analyses contained herein are not intended as tax, legal or investment advice and may not be suitable for your specific circumstances; accordingly, you should consult your own tax, legal, investment or other advisors, at both the outset of any transaction and on an ongoing basis, to determine such suitability. Any investment returns, past, hypothetical or otherwise, are not indicative of future performance. Investment Decisions: Do not use this report as the sole basis for investment decisions. Do not select an allocation, investment discipline or investment manager based on performance alone. Consider, in addition to performance results, other relevant information about each investment manager, as well as matters such as your investment objectives, risk tolerance and investment time horizon.

Past performance does not guarantee future results.

DISCLOSURE

Investment products: are not FDIC insured - May lose value - Are not bank guaranteed

Opinions and estimates offered constitute Miller/Howard Investments' judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. All investments carry a certain degree of risk, including possible loss of principal. It is important to note that there are risks inherent in any investment and there can be no assurance that any asset class will provide positive performance over any period of time. The material may also contain forward-looking statements that involve risk and uncertainty, and there is no guarantee they will come to pass.

The information above is from sources deemed to be reliable and is provided strictly for the convenience of our investors and their advisors. These materials are solely informational. Legal, accounting and tax restrictions, transaction costs and changes to any assumptions may significantly affect the economics of any transaction. The information and analyses contained herein are not intended as tax, legal or investment advice and may not be suitable for your specific circumstances; accordingly, you should consult your own tax, legal, investment or other advisors, at both the outset of any transaction and on an ongoing basis, to determine such suitability. Any investment returns, past, hypothetical or otherwise, are not indicative of future performance. Investment Decisions: Do not use this report as the sole basis for investment decisions. Do not select an allocation, investment discipline or investment manager based on performance alone. Consider, in addition to performance results, other relevant information about each investment manager, as well as matters such as your investment objectives, risk tolerance and investment time horizon.

Past performance does not guarantee future results.