A new report from energy consultancy Wood Mackenzie finds that U.S. shale producers have become more adept at staying profitable, even with current low commodity prices. By cutting costs throughout development and improving production efficiency, the cost of production for U.S. operators fell by up to 40 percent over the past two years.

As EID previously reported, despite the market decline, fracking has become increasingly efficient since 2007. According to U.S. Energy Information Administration (EIA) data released in February, the amount of oil produced per well has increased over the past decade, particularly over the past two years. This allowed production to stay relatively level in 2015, even as rig numbers declined from the prior year’s record highs.

Additionally, with more oil produced from each well, the breakeven price of a barrel of oil – the price at which producers can still cover the cost of production – has fallen substantially since 2014. As the Wood Mackenzie report notes,

“Global breakeven costs have fallen by US$19/bbl [per barrel] to the current weighted average of US$51/bbl since the peak in 2014 and by US$8/bbl over the past 12 months”

Several factors contribute to this drop in breakeven price. As the report points out, about 40 percent of the cost savings has come from improved rates from companies that service operators by providing equipment such as rigs and pipes. In addition, technological innovations in fracking have improved production decline rates – the rate at which production declines from its peak – meaning wells fracked today are lasting longer, producing more, and fewer wells are needed to maintain the same level of output. Couple these factors with resource rich domestic shale plays in the Permian and Eagle Ford Shales, U.S. shale development is truly a winning combination in terms of profitability. As the report mentions,

“Productivity improvements and cost deflation have made tight oil production more economically viable in the key growth plays. Key plays such as Eagle Ford and Wolfcamp dominate the lower end of the cost curve, the latter averaging under US$40/bbl”

By being so cost effective, U.S. shale producers account for the majority of projected production volumes. According to the report:

“Of the 13 million b/d [barrels per day] available, 9 million b/d is commercial at US$60/bbl Brent. That’s more volume than we’ve seen since 2009 and 1.5 million b/d more than a year ago. New US tight oil drilling pics up the slack, accounting for 60% of the volumes which are commercial at US$60/bbl.”

As this report shows, the combination of abundant domestic reserves, increased efficiency through improved fracking techniques, and some good old fashioned American innovation have allowed U.S. shale producers to not only survive, but thrive.