Drilling efficiency increases will lead to increased production even if oil prices decline
...One of the reasons that drilling activity has increased substantially in the Permian Basin of Texas is that it has already become profitable to drill there at current prices. In addition to the increased efficiency in recovering oil, the Trump administration's plan to deregulate many of the onerous requirements imposed by Obama could also lower cost.
If you are an oil producer—or really, any commodity producer—two things can improve your profit margin: higher selling prices for the resource you produce or lower production costs. Some combination of both works as well.
Now, selling prices are mostly outside the producer’s control, though adept hedging can help. Cost reduction is, therefore, the place to concentrate your attention. Back in 2015, I wrote about new drilling techniques and other technology that promised to bring oil and gas production costs significantly lower.
Now, in the last few weeks, people in the business have told me these technologies are moving rapidly toward deployment. They foresee considerably lower drilling and production costs by the end of this year.
I had a confidential briefing recently about some new energy production processes that are coming online in the oil patch. Let me just say that production from an oil well drilled with these new techniques is getting ready to increase substantially.
In some cases, the amount of oil produced per dollar spent on drilling is going to more than double. There are significant chunks of the petroleum-producing parts of the United States where $40 oil will not be a barrier to drilling and new production.