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Shale Production Costs Expected to Rise by 2.8% in 2025 as Drilling Picks Up

by The Universal Chronicle
October 2, 2024
Reading Time: 4 mins read
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Shale production costs are forecast to rise by 2.8% in 2025 due to increased drilling and longer wells. Learn what’s driving these changes in the oilfield-service industry.


Shale Drilling Costs Set to Rebound in 2025

In 2025, shale drillers in the U.S. can expect their production costs to rise by 2.8%. This comes after a year of cost reductions in 2024, driven by a slowdown in drilling activity and increased efficiencies in the industry, according to a recent report by Enverus, a leading industry consultant.

After a 6.3% drop in production costs per well this year, shale operators are likely to see costs climb again as drilling ramps up, particularly in the hunt for natural gas. The extension of longer wells, known as laterals, is also expected to push costs higher.

Drilling Activity Hits Bottom

In 2024, the U.S. shale industry experienced a dip in drilling activity. This was partly due to corporate mergers and advancements in drilling technology, which helped increase the output of each well, reducing the overall need for more rigs. In fact, the number of rigs drilling for oil and gas in the U.S. fell by 6% this year.

Despite this, industry experts like Mark Chapman, an oilfield-services analyst at Enverus, believe that drilling activity has now hit its lowest point. “We believe activity has bottomed and oilfield-service prices will bottom by the end of this year,” Chapman said.

The decrease in costs this year was helped by an oversupply of fracture sand, a key component in hydraulic fracturing, which caused prices to drop. However, with an expected rebound in drilling, particularly focused on natural gas, and a trend toward drilling longer horizontal wells, costs are set to increase again in 2025.

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Natural Gas Drilling Set to Rise

One of the key factors driving the expected increase in shale production costs is the rising interest in natural gas. As energy markets shift, many shale operators are turning their attention to gas-rich formations, which require significant investment in drilling. This increased activity is likely to boost demand for oilfield services, which in turn will push costs higher.

Moreover, shale operators are extending the length of their lateral wells. By drilling wells that stretch further horizontally, companies can access more resources from a single well, improving efficiency. But this technique also requires more equipment, labor, and materials, which adds to the overall cost of production.

Cost Reductions and Efficiency Gains in 2024

The reduction in shale production costs this year was largely driven by efforts to maximize efficiency. Shale operators focused on improving technology and reducing unnecessary expenditures, leading to a 6.3% drop in per-well costs. Many companies used fewer rigs but were able to extract more oil and gas from each well.

In addition to these technological improvements, an oversupply of fracture sand—the material used in hydraulic fracturing—further helped to lower costs. With less demand for sand, prices fell, allowing shale operators to reduce expenses.

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What’s Next for the Shale Industry?

Looking ahead, the shale industry is preparing for a rebound in drilling activity, which will likely drive production costs higher in 2025. Enverus predicts a 2.8% increase in costs as companies begin to drill more wells, particularly in gas-rich areas, and extend the length of their horizontal wells.

This trend comes as North American drillers are expected to reduce their spending by 1% in 2024, according to Barclays Plc. However, the anticipated increase in drilling activity next year signals that the industry is poised for a recovery.

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While shale operators have enjoyed cost savings this year, rising prices for oilfield services and materials in 2025 may eat into their profit margins. As the market shifts, operators will need to find a balance between maximizing efficiency and managing costs.

The U.S. shale industry is set for a cost increase in 2025, with production costs expected to rise by 2.8%. This comes after a year of cost reductions, driven by a slowdown in drilling and increased efficiencies. However, with more interest in natural gas drilling and longer lateral wells, the industry is preparing for a rebound. As drilling activity picks up, shale operators will face rising oilfield-service prices, marking a new chapter in the ever-evolving shale industry.

Tags: 2025 cost reboundEnverus shale reportnatural gas drillingoilfield servicesshale industry newsshale production costsshale production forecastU.S. shale drilling

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