Naimi’s argument proved persuasive: opec decided not to reduce production, and the price of oil plunged—from just over $70 a barrel to less than $60 by the end of the year. The move immediately came to be seen as a strike against U.S. frackers. “Inside opec Room, Naimi Declares Price War on U.S. Shale Oil,” announced a Reuters headline the day after the meeting. And in fact, oil prices did appear to be crossing an ominous threshold for frackers: In December 2014, U.S. shale producers needed oil prices to be at $69 a barrel on average in order to break even on a newly drilled well, according to Rystad Energy, a consulting firm. Whether or not this was an explicit price war, many observers believed that U.S. fracking was in trouble.
What’s happened since has been a surprise. Even as oil prices fell and stayed low—by January 2016, they had dropped to less than $30 a barrel; today, they’ve rebounded, but only to about $45—shale-oil companies kept pumping. Their average break-even price has fallen by more than 40 percent, to about $40 a barrel. In some parts of the country, that figure is much lower. In the Bakken shale formation in North Dakota and Montana, where the economics of fracking are particularly favorable, the average break-even price is $29.
Fracking, it turns out, is a remarkably nimble industry—which perhaps, in retrospect, should not have been such a surprise. In the early years of the fracking boom, a Harvard Ph.D. student, Thomas Covert, studied records related to wells fracked in the Bakken shale formation. Wells that were newly tapped in 2005, he found, captured on average only 21 percent of the profits they could have produced if they’d been fracked in the most optimal way—that is, with the best mix of water and sand. By 2012, though, newly fracked wells were capturing 60 percent of maximal profits.
When oil prices fell, frackers responded by continuing to innovate. David Demshur, the CEO of Core Laboratories, a Dutch company that analyzes the ground into which oil companies drill, recalls suddenly getting a lot of phone calls in the summer of 2014 from shale companies desperate to squeeze more oil out of their wells. Demshur’s business with shale companies, until then, had amounted mostly to producing reports on the characteristics of a given chunk of rock; it was up to the companies to make use of the information. Now Core Laboratories started recommending the best cocktail of water, proppant, and any of several chemicals to get the most oil out of a particular well. Some of the biggest shale companies signed up.
Demshur’s experience wasn’t unusual; I heard similar stories as I spoke with analysts and oil-company representatives. Oil companies invested more in technology from outside firms to help them become more efficient and productive at fracking, while also doing their own in-house research. Their techniques varied: using different combinations of water, proppant, and chemicals; applying the cocktail with greater pressure; drilling several wells simultaneously in a single area; using drones and sensors, instead of humans, to detect when equipment needed to be fixed or replaced.