U.S. Shale Oil: A Grand Parade Of Cost Improvements
http://seekingalpha.com/article/3095956-u-s-shale-oil-a-grand-parade-of-cost-improvements
In the related article you provided, about sharp declines in oil production costs, I saw this:
“While these very deep cost reductions for the E&P sector are unlikely to be sustained in the long run...”
Although some of the cost reduction is due to new techniques, a lot is due to the fact that the premium “boom town” prices that many had been able to charge during the boom are coming back down to Earth.
Rig counts are down, and US Steel recently announced major layoffs in their facilities that produce tube steel for the energy sector. To stay competitive in a shrinking market with more surplus supply, a lot of suppliers and service providers have to lower their prices to the companies exploring for and producing hydrocarbons.
Additionally, the articles mention that older/less efficient equipment has been preferentially shut down, so the remaining mix of gear has more efficient, newer stuff. The same applies to geology - the tougher spots on the margins of profitability are among the first to shut down, so the sweeter spots make up a higher percentage of what is left, reducing the average cost.
The essential point that efficiency has improved is true, but the speed at which this has occurred appears magnified by temporary market adjustments. Although costs have quickly dropped by a quarter or a third, only a small part of that improvement is the result of technological innovation.
Production costs for tightly bound shale oil and gas will inherently stay higher than production costs for Saudi reserves sitting in large pools under pressure, ready to gush out on its own. Frakkers are unlikely to ever make money at $10 a barrel, but they are continuing to push their price points down with innovative technology and good management.