ConocoPhillips , a major U.S. oil producer, says it can make a profit on its U.S. shale wells as long as oil trades for more than $40 a barrel, a figure that has been falling in recent years. A Conoco spokesman said improved efficiency, better technology and a better understanding of the rocks helped the company reduce costs.
And it is not alone. The expense of getting oil from the Eagle Ford Shale fell by about 15%, or $7.50 a barrel, last year, despite intense competition for rigs, truck drivers and oil-field services, says Pers Magnus Nysveen, head of analytics for Rystad Energy, a Norway-based global oil consultant. Costs could fall another 10% to 15% this year as some financially weak companies pull back and competition for services lessens.

“The key driver here is improved efficiency,” Mr. Nysveen says.

Companies like EOG Resources Inc. are drilling better wells faster. EOG said recently it takes 4.3 days to drill its average well in the Eagle Ford Shale in South Texas, down from 14.2 days in 2012. What’s more, as it drills more of them, it has figured out how to locate wells to get the highest oil output.

Combining lowering costs and increasing output means that EOG says it can drill wells at $40 per barrel in North Dakota, South Texas and West Texas, while still earning a 10% return. We “pride ourselves on being a very efficient operator,” Billy Helms, EOG’s head of exploration, said at a recent industry conference.

Since oil prices began to fall, many companies have cut their capital spending plan for 2015 and the number of drilling rigs in the U.S. has fallen. But output has continued to increase.

Mike Rothman, president of Cornerstone Analytics, says that given the decreasing costs of drilling, it is not clear when shale output in the U.S. will fall.

“How quick will the response in shale oil be to this drop in prices? That is a big open question,” he says. “With shale, you are dealing with something very different.”