Energy industry experts are predicting a collapse of US shale oil production after the oil markets have been rocked by a couple of gut punches. The inability of the Saudis and the Russians to agree on production cuts, followed by the Coronavirus pandemic, have caused a glut in the market and severely curtailed economic activity. The result is lower prices and less demand for oil worldwide.

While there is no denying the industry has been hurt, we should also recall that obituaries were being written for the shale oil industry in 2014 when OPEC flooded the market with oil in an effort to knock the legs out from under the relatively young US shale oil industry. When prices dropped, shale oil producers and service industries sharpened their pencils, cut costs and outlasted OPEC. Prices rebounded and shale producers took advantage of lower production costs. In 2018 the US became a net exporter of oil and gas for the first time on record.

If the aim of the Russians, and/or the Saudis is to bury the US shale industry, they will have to keep oil prices at fire sale prices for quite some time. American oil will still be in the ground and at some point, it will be exploited. Low oil prices are not sustainable for either the Russian or Saudi economies. Both are heavily dependent on oil and both have tremendous deficit problems.

Kingfisher County is the epicenter of the STACK play, a shale oil first drilled by Newfield in 2011. The name is an acronym for Sooner Trend, Anadarko basin, Canadian, Kingfisher counties but it is also a description of the geology in the area. Several producible formations are “stacked”, allowing operators to access the formations from a single drilling pad. According to a geologist friend, the source rock is the Woodford formation, a tight shale which was deposited during the Devonian period 360 million years ago. A deep sea covered this area of the state and microbes, by the billions, died and sank to the bottom of this sea. Because of the lack of oxygen on the sea bottom, the organisms did not decompose. Silt and mud covered the organisms and pressure and temperature eventually converted them to oil and gas. The hydrocarbons migrated into the overlying Mississippian Meremac and Osage and other shallower formations. In previous cycles of oil and gas drilling activity, the Woodford and the Mississippian formations were virtually ignored, other than to log as a “show” in rocks which were considered too tight to produce. That all changed with the advent of horizontal drilling technology.

In the days of vertical drilling, only that portion of the producing formation which was penetrated by the drill bit could be fractured. Fractures did extend into the rock for some distance, but the vast majority of the formation was left untouched. Horizontal drilling enabled the rig to deviate from a vertical hole through the use of mud motors and steering systems to enter a target formation and keep the drill bit in that formation for up to two miles. Using oil based drilling mud as a medium, elaborate computer programs were developed, allowing employees at ground level to communicate with the downhole assembly and track the bit as it progressed through the target formation. Once the bore is complete, hydraulic fracturing of the rock begins. Under enormous pressures, water and sand, are introduced into sections of the well bore. A well may have up to 40 stages (or more) on a two-mile frack job. The pressures generated will crack the rock, allowing sand to flow into the fractures. The sand props open the induced fractures and prevents them from collapsing. These fractures allow hydrocarbons to flow from the reservoir rock to the well bore and vastly increase oil production.

Through the use of horizontal drilling techniques and multi-stage fracturing, US midsize companies like Continental, Ovintiv and Devon have exploited formations in many basins, including the Williston (Bakken), Gulf Coast (Eagle Ford), Anadarko (Stack and Scoop) and Permian (Delaware). These basins were largely abandoned by major oil companies as they pursued larger prospects internationally.

These unconventional plays have produced thousands of well-paying jobs, millions of barrels of oil and dumped millions of dollars into local, state and federal coffers. The process has become so streamlined and efficient that a well in the Stack can be drilled in as little 12 days, a double well pad can be fracked in 7-8 days and a triple well pad can be fracked in as little as 12 days.

That efficiency has most certainly drawn the attention of OPEC and Russia. Assuming that Russia and Saudi Arabia can’t continue to operate their economies and satisfy debt payments with $20 per barrel oil, the thought exists that they are hoping to flood the market with oil now and hope that the death blow to shale oil will be delivered by the US presidential election in November. The Trump administration has relaxed the bureaucratic stranglehold on the energy industry and has encouraged the industry to create jobs, help grow the economy and eliminate the ability of OPEC to control the free flow of oil to our economy. The presumptive Democrat nominee, Joe Biden, has suggested he would end the oil industry’s ability to drill, and would ban new fracking projects. “No more subsidies for fossil fuel industry, no more drilling on federal lands, no ability for the oil industry to continue to drill,” Biden said.

US ingenuity and free market capitalism have proven that our energy industry can run circles around the world competition. The question becomes, can the industry survive the machinations of our country’s left wing politicians?

[Ed. Note: Reid is a retired drilling company owner-operator now living southwest of Kingfisher with his wife, the former Donna Petty.