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US shale becomes oil industry's safe haven as prices languish

Houston

BIG OIL is investing more in US shale, not less, after the recent tumble in crude prices.

It's a far cry from four years ago when Opec declared war on American shale areas, which at the time had some of the highest costs anywhere in the world and were often the first on the chopping block during tough times.

The cost of shale production has fallen so much since then that it's becoming a safe haven for major oil companies in times of volatile prices, providing rapid, reliable growth and quick returns even with crude trading for just over US$50 a barrel, down by almost a third since the start of October.

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The US shale sector has helped boost American production to an average of 10.9 million barrels a day this year, the most on record. Output is forecast to grow a further 11 per cent next year, according the Energy Information Administration.

ConocoPhillips said on Monday that it is spending half its 2019 budget in the continental US, while Chevron Corp is investing more at home than it has done for more than a decade, with US$3.6 billion going to the Permian Basin alone. Anadarko Petroleum Corp and Hess Corp, both global operators, plan to increase spending on their American assets more than 40 per cent.

Oil's recent collapse caused "some different allocation going on within the budget," Conoco chief executive officer Ryan Lance said. "We're putting more toward our US unconventional position," he said, referring to shale. Production growth "slows down at US$50 but I don't think it stops at US$50, and it certainly continues if prices get back to US$60," Mr Lance said. Sceptics thought that shale "wouldn't last long, but it's here, it's a huge resource and it's going to be resilient and long lasting".

In the US, Conoco wells in the Eagle Ford Shale, Permian and the Bakken field generate cash when prices are around US$50 a barrel or more. The company pumped 313,000 barrels a day from the three regions combined during the third quarter, or 25 per cent of the Houston-based company's global production.

Conoco will increase its shale production by 25 per cent next year, Mr Lance said. That's on top of growth of about 35 per cent expected this year. The shale revolution is having a bigger impact on energy markets than the development of offshore production in the 1960s, he said. BLOOMBERG