"No change." It was roughly one year ago that Kuwait's oil minister succinctly delivered the message that would turn the oil market on its head. The group of oil producing nations had decided to keep the organization's output at a ceiling of 30 million barrels per day, despite the fact that supplies were surging thanks to U.S. shale producers while demand, especially in China, was weaker than expected. Those two little words sent the price of crude into a tailspin from which it has yet to recover.

Halting the ascent

Those two words really inflicted significant damage to the worldwide oil market. Investment in new oil projects plunged with $200 billion of investments in new oil projects being deferred this year, and upward of $1.5 trillion in future projects at risk of not being developed due to challenged economics at current oil prices. Meanwhile, closer to home, shale drillers slashed capex spending, with many spending cutting spending by 50%. This cutback led U.S. oil production to peak earlier this year, before turning over into what's expected to be a steady decline for at least the next year.

Yet, despite the deep impact on production and the profitability of U.S. oil companies, OPEC's decision to protect its market share instead of the market price of oil has yet to kill the shale industry. Instead of killing it, lower the oil price is making the industry stronger.

Building a better well

Nowhere is this clearer than the drilling returns for shale wells. A crude crash was expected to be the death knell of the juicy returns that drillers could earn through the drill bit, with it not uncommon to see a driller earn a rate of return above 50% at $90 oil. However, through focused cost reductions, new technologies, and some good old American ingenuity, many shale drillers can earn a drilling return as good, if not better, at today's oil price than when oil was much higher.

Permian Basin focused Laredo Petroleum (NYSE:LPI) is a prime example of this stunning improvement. Thanks to a combination of drilling a longer horizontal lateral to go along with better well targeting due to its Earth Model, Laredo Petroleum's returns today are almost as strong as its pre-crash returns.

Another important development over the past year has been the dramatic uptick in well performances thanks to increased sand volumes being pumped into wells. Bakken shale driller Whiting Petroleum (NYSE:WLL), for example, has experienced a 44% improvement in its average 30-day production rate over wells completed in the prior quarter. This was after Whiting Petroleum shifted to an enhanced completion technique whereby it increased its average sand volume per well from 3 million pounds to 5.2 million pounds.

Even more stunning were two monster wells Whiting Petroleum completed with a hybrid-style using seven million pounds of sand. Those wells achieved an average initial production rate of more than 5,000 barrels of oil equivalent per day, or BOE/d, against last quarter's average initial rate of more than 1,100 BOE/d. In drilling better wells, not only can Whiting still earn a fairly lucrative 31% return, but it now estimates that it can reduce its spending by $1 billion next year, or by more than 50%, and keep its production flat while balancing capex with cash flow. That alone represents a remarkable turnaround for a company that had a history of outspending cash flow.

Investor takeaway

OPEC's intention has been to keep a lid on oil prices in an effort to severely weaken its growing U.S. rival. While it has certainly succeeded in weakening shale producers, it hasn't choked out the industry. Instead, the shale industry is drilling better wells than it was when prices were higher, suggesting that what was intended to kill it, has only made it stronger.