I have got a response from Norman on my blog “Fracking as Swing Producer”, and as I think that the response is important I publish it as a new blob.
A large part of the significant reduction of the average cost of US shale oil wells is merely temporary. Much of the cost decline is due to price deflation for oilfield services. Service companies have sold services below their true cost. These price declines are not sustainable over the long term – evidenced by over 108 bankruptcies of oilfield service companies.
Another part of the cost decline is because oil companies have retreated from the most expensive areas.
Over 105 shale oil companies declared bankruptcy because they were unable to pay their debts, but these companies didn’t go out of business – they just reduced their payments on tens of billions of dollars of debt – then they continued to operate. Some companies have even declared bankruptcy twice. So another part of the fall in average cost is due to reduction in debt payments.
Whenever prices rise, shale companies will begin paying higher prices as drilling rates rise toward previous levels, and since US oil and oilfield service companies laid off over 100,000 workers, their labor costs could increase dramatically to rates even higher than before.
Technology and processes did not improve so much in 2 years to cause this entire cost decline as many give the impression. How much of the cost decline is due to each factor is difficult to determine without detailed analysis, and probably requires more data for precise estimates, but it might be possible to make some reasonably accurate estimates based on trends and data available.
It will be interesting to see their average cost per well over the next 4 years – after oil prices have risen – whether they’re able to find financing so easily as the last few years – and how many more companies declare bankruptcy.
Aleklett's Energy Mix 
jeppen
February 3, 2017
Before that oil price crash, the fracking industry was extremely overheated. Wages and assets were priced far above what they would have been in a long-term equlibrium market. It’s probable that the correction is in overshoot, that the costs are depressed below the long-term equivilibrium. However, we can be pretty confident that we are closer to equilibrium now than during the boom years. After all, operators need to pay their expenses and get some kind of return on capital.
And as always, processes and technology are progressing fairly rapidly. The raw capital and O&M cost in decent plays seems to be below $10/bbl. (Land costs and taxes goes on top of that.) The genie is out of the bottle and it won’t be possible to push it back in. These plays’ oil is going to get recovered.
alex
February 5, 2017
stämmer verkligen det som Lars Wilderäng säger om att Sverige inte är beroende av rysk olja??.
Lars brukar ju vara en klok man, men vad är det här han har fått för sig nu :
http://cornucopia.cornubot.se/2017/02/sverige-ar-ej-beroende-av-rysk-olja-kan.html?m=1
mvh/peakisten
Lars-Eric Bjerke
February 6, 2017
Världsproduktionen av råolja är ca 90 Mfat/dag och Sveriges import är 0,4 Mfat/dag varav hälften numera kommer från Ryssland. Det är rimligt att tänka att om inte ryssarna vill sälja till oss vill någon annan, om vi betalar rätt pris. Sen är det naturligtvis bra att ha långsiktiga kontrakt så att raffen är anpassade för säljarens produkter. Notera också att Preem numera tillverkar en “Svanenmärkt” diesel baserad på tallolja.