I had been considering drawing up an example of how operators and royalty interests are benefiting from increasing production driven by technology.  Where early unconventional horizontal wells might have recovered 15 or 20% of the oil or gas in place, newer wells may produce more, 30% or more.  Before I put together an example to demonstrate this under-discussed and reported fact, I ran across this article.  I think it will serve to get the discussion started.

AMID OIL DOWNTURN, SILVER LINING FOR SHALE PRODUCERS?

Bill Loveless, Special for USA TODAY 7:32 a.m. EDT August 2, 2015

The slump in oil prices is more than a year old now, with bad news continuing for producers around the world, including those responsible for the shale revolution in the U.S.

Just look at second-quarter earnings, which largely show disappointing results again for oil companies and their shareholders.

But while there may be no end in sight for the industry’s dilemma, there may be a silver lining for producers, especially those using the downturn to hone drilling techniques, like hydraulic fracturing, to reinforce their output and profits later.

Among those who see such positive signs for drillers is Bill White, the chairman of Houston operations for Lazard, the global investment bank, and a former three-term mayor of the Texas metropolis.

“Most of the shale oil and gas is produced from a relatively small percentage of the shale wells and a fairly small percentage of the fracks in each well,” White said in an interview. “When the industry learns to drill more wells like the best wells and to make more fracks productive, you will see a vastly greater amount of oil and gas produced in the United States at the same total cost.”

White, while well known for his political experience in Houston, has spent much of his career in energy, including as an official in the Clinton administration and a chief executive of a company that built oil service businesses.

“This is a topic I discuss weekly and almost daily with senior executives of the service companies and the oil and gas industry,” White said. “There’s a lot of progress being made. In this sense, that is the next big chapter in the shale revolution.”

As an example, White cited the U.S. independent EOG Resources, which told investors in May that it could earn a higher return producing oil in Texas at $65 a barrel then than it did at $95 in 2012, thanks to new technology and other cost-saving measures.

“They’re producing more oil per dollar spent,” White said of EOG, which he noted is not one of Lazard’s clients.

Among the innovations coming down in cost is micro-seismic technology that interprets sound waves to more precisely guide the direction of drilling and the application of fracking, he said.

The energy research firm Wood Mackenzie offers a similar outlook in a new paper that draws a comparison with the lull in Gulf of Mexico drilling following the blowout of BP’s Macondo well in 2010 and a government moratorium on new wells.

“Operating practice and company psychology changed when players stopped running on a leasing treadmill and increased their focus on basin science,” Wood Mackenzie said.

Once offshore drilling resumed, the average size of discoveries was 30 percent larger, even as the number of discoveries fell by half, according to the analysis, which credits producers with using the slow-down to enhance the ways they vet prospects and design wells.

“Today’s tight oil wells are better producers than those drilled only a few years ago,” Wood Mackenzie said, referring to shale formations. “Expected ultimate recoveries have grown by over 10 percent each year with the application of better drilling technology, more robust modeling and experienced asset teams.”

With the “pencil-sharpening” exercises only increasing in the oil and gas sector, those improvements in ultimate recoveries will continue onshore as well as offshore, it added.

Said White: “If the last 10 years have been a shale revolution with a lot of excitement and celebration, then over the next 10 years we’ll be watching the revolutionaries pay greater attention to the critical task of deploying technologies that steadily lower the average cost of production.”

Bill Loveless  —  @bill_loveless on Twitter  —  is a veteran energy journalist and television commentator in Washington. He is a former host of the TV program Platts Energy Week.