United States: OPEC’s Price War Is Entrenching North American Shale Producers’ Global Competitive Advantage

Oil price uncertainty strengthens the global competitive advantages of U.S.—and Canadian—unconventional oil projects. Both countries offer excellent geology, robust supporting infrastructure, deep local capital markets, stable politics, and favorable legal and regulatory regimes. They will be the markets that see the leading edge of efficiency improvements and cost decreases. In a nutshell, the OPEC low-cost producers' decision to launch and sustain a crude oil price war will only entrench and increase the North American shale drillers' first-mover advantage over the next several years.1

The U.S. already has a massive lead on other countries that are developing (Argentina) or that seek to develop (China, Mexico, Russia) unconventional oil and liquids projects, as reflected by the fact that liquids output growth in the U.S. between 2009 and 2014 was roughly three times larger than that of Canada, China, and Russia combined (Exhibit 1).

Exhibit 1:  U.S. Liquids Production Growth Compared to That of Other Current and Potential Unconventional Oil Producer Countries

Source: EIA, El Universal, National Energy Board, NBS China, Reuters

First-mover status favors the core U.S. and Canadian developments because most overseas shale oil projects (in China, for instance) are in the test phase and remain too small to capture economies of scale and thus need much higher oil prices to produce economically. Even for the main non-North American play that is actually in commercial development—Argentina's Vaca Muerta—analysts estimate that it needs prices close to $85  per barrel to break even.2 This is on par with the highest-cost U.S. plays such as the Tuscaloosa Marine Shale—and far above the costs of the Bakken, Eagle Ford, and Permian, which have many areas that are profitable at prices as low as $50/bbl (and in some cases lower).3 And these breakeven points in the U.S. are likely to fall as costs decline—indeed, one of the largest U.S. unconventional oil producers expects its drilling and completion costs to decline by at least 20 percent in 2015.4

E&Ps are likely to slow or defer development plans for unconventional oil and liquids projects in Argentina, Mexico, Russia, and China—particularly if prices remain weak another three to six months, which looks likely. Slowing or deferring these projects will significantly retard the pace of their development, as many of the specific completion procedures needed to "crack the code" and efficiently and successfully develop unconventional liquids projects are typically locally generated and play-specific.

Optimizing well and completion designs requires experimentation, involves trial and error, and can take years in a new play—even in the freewheeling, innovative U.S. oil patch. It also requires lots of drilling—the simple shale arithmetic is that more wells drilled equals more data to study and more opportunities to learn and improve. A prolonged period of low prices risks stalling this process, particularly outside North America.

Just because U.S. producers are mastering the shale game does not mean their experiences will be neatly transferrable to foreign projects. Indeed, China's shale gas and oil development to date has thus far significantly underperformed relative to expectations despite China's multibillion-dollar investments in U.S. projects, hiring service companies with deep experience in U.S. shale gas, and researching the U.S. shale revolution.5

Herein lies the irony of OPEC's actions: most North American shale producers are no longer the marginal, high-cost global barrels. Low prices are simply making the strong stronger—EOG Resources reports it now makes better returns on oil at $65 per barrel than it did at $95 per barrel in 2012.6 Plus, in the unconventional plays in the United States that primarily produce natural gas (such as the Marcellus), infrastructure improvements, pending LNG exports, and healthy industrial demand will continue to support robust natural gas drilling and production activity.

Whatever challenges U.S. unconventional producers face in the current environment, aspiring shale developers in other locations face much larger challenges. The realities explained above beg the question of what the Saudis and other low-cost OPEC producers' true objective is—do they really seek simply to punish North American shale drillers, or are they instead playing a longer game and seeking to sidetrack the potential emergence of a global shale boom that could trigger a long-lived oil price collapse?


1 By "low-cost producers," the author refers to Saudi Arabia, Iraq, Kuwait, Qatar, and the UAE, which have the lowest production costs in OPEC and are best positioned to weather low prices for several more quarters if necessary as they compete for market share.

2 Martin Bidegaray, "La caída del petróleo complica los planes en Vaca Muerta," ("Oil's Fall Complicates the Plans for Vaca Muerta"), El Clarin, Nov. 15, 2014, http://www.ieco.clarin.com/economia/precio-crudo-Vaca_Muerta_0_1249675063.html.

3 Cimarex Energy, "Corporate Update—February 2015," showing that Wolfcamp wells in the Delaware Basin can now make internal rates of return between 33 percent and 52 percent with oil at $40/bbl; http://cimarex.investorroom.com/presentations (accessed on Feb.19, 2015).

4 For instance, see Pioneer Natural Resources, Feb. 18, 2015, investor presentation, http://investors.pxd.com/phoenix.zhtml?c=90959&p=irol-presentations (accessed Feb. 19, 2015).

5"我国页岩气2020年产量目标减半," ("China 2020 Shale Gas Output Goal Cut in Half"), CNPC, Aug. 8, 2014,  http://news.cnpc.com.cn/system/2014/08/08/001501540.shtml  (accessed  Feb. 19, 2015).

6 EOG Resources investor presentation, Feb. 18, 2015. http://www.eogresources.com/investors/slides/InvPres_0215.pdf  (accessed Feb. 19, 2015).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.