The Shale Cost Conundrum

January 17, 2017

U.S. oil output is nearly 9 million barrels a day, with an extra 500,000 barrels a day for the past three months. That extra volume neatly makes up the difference that Saudi Arabia committed to stop producing in an effort to boost global crude prices.

A per-barrel price of $55 is about where shale companies say they need to be to make a profit, so while the price is steady companies are ramping up to put additional rigs back into the oil fields.

But, just as the drillers are seeing opportunity, so are the field service industries. The Wall Street Journal reports the cost to hire an experienced drilling crew and source critical oil-field supplies, including the sand used in hydraulic fracturing, has surged between 10 percent and 20 percent this winter. Experts say shale companies could face even higher prices if crude keeps climbing to $60 a barrel.

Hundreds of small to midsize rivals that run rigs, truck water and pipe in and out of the field and provide the labor to frack wells are renegotiating contracts. Sand costs are rising -  experts estimating frack sand could jump 60 percent this year.

The Journal's For Shale Drillers, Rising Oil Prices Also Come With Rising Costs discusses the balance producers and field service companies are trying to reach.