Thanks to the U.S. shale revolution, which has allowed energy producers to coax oil from previously unreachable shale formations through the application of hydraulic fracturing and horizontal drilling, the nation's oil production has surged 50% over the past five years.
In fact, the United States is on track to surpass Russia as the world's No. 2 oil-producing nation by next year, according to the International Energy Agency. Let's take a closer look at two key shale plays and companies that are driving this phenomenal surge in output.
North Dakota's Bakken shale
Most of the companies fueling this rapid growth in U.S. oil production have significant positions in plays such as the Bakken shale of North Dakota, the Permian Basin of West Texas, and the Eagle Ford shale of South Texas.
In the Bakken, one of the most prolific shale plays ever discovered, oil production continues to set new records. In August, North Dakota's portion of the play pumped out 847,150 barrels a day, up 4.3% from a previous high recorded in July. Kodiak Oil & Gas (NYSE: KOG), whose assets are almost exclusively located in the Bakken, and Halcon Resources (HK), which commands 150,000 net acres in the play, are two companies driving this growth.
Last year, Kodiak reported oil production growth of 250% as its total sales volumes ballooned to 4.7 million barrels from just 1.34 million in 2011. This year, its second-quarter output reached an impressive 34,000 barrels of oil equivalent per day, thanks to cost reductions through continued efficiency improvements. Encouraged by these results, Kodiak raised its 2013 production forecast to a range of 30,000-34,000 BOE per day -- a target that appears readily achievable if the company can continue driving down operating costs through further optimization of its drilling program.
Similarly, Halcon Resources grew oil production last year by a remarkable 173.2% year over year, a feat it hopes to repeat this year by spending roughly $1.2 billion on drilling and completing wells. In the second quarter, it was producing about 35,000 barrels of oil equivalent per day, thanks to continued success in modifying both drilling and completion practices. Going forward, the company plans to spend roughly $1.2 billion on drilling and completing wells this year, with a particular focus on its Bakken acreage.
Texas' Eagle Ford shale
Along with the Bakken, dozens of companies including Chesapeake Energy (CHKA.Q) and ConocoPhillips (COP 0.10%) are seeing phenomenal success in the Eagle Ford, a highly sought-after shale oil play. In June, output from the play jumped 60% year over year to 617,884 barrels of crude a day, according to data from the Texas Railroad Commission.
During the second quarter, Chesapeake pumped roughly 85,000 barrels of oil equivalent per day from the play, which represents a staggering 135% year-over-year increase in output. The company views Eagle Ford as one of its core drivers of oil production growth and is allocating the largest portion of its capital budget for the year to drilling and completions in the play. In combination with its asset sale program and cost-cutting strategy, Chesapeake hopes that success in the Eagle Ford will help keep capital spending within its cash flow this year for the first time in several years.
Similarly, ConocoPhillips produced roughly 121,000 barrels per day from the the Eagle Ford during the second quarter, almost double its output during the same period last year. Like Chesapeake, the company has been aggressively divesting less profitable assets and plans to concentrate the largest portion of its capital this year on onshore U.S. liquids plays, including the Eagle Ford, the Permian Basin, and the Bakken, which are expected to account for about 60% of the 3%-5% annual production growth the company is shooting for over the next several years.
Years of oil production growth
The surge in U.S. oil production in recent years, driven by some of the above-mentioned companies, has truly transformed the global oil markets.
Not only has it been a boon for U.S. refiners, many of which have benefited from the deep discount between the price of domestic and foreign crudes, but it has also significantly reduced American oil imports. As long as oil prices remain high and shale well decline rates remain under control, investors can expect U.S. oil production to continue to grow robustly for several more years.
