LESS JOBS, MORE PRODUCT:

The increase in domestic crude oil production of 3.6 million barrels a day in less than four years, reversing almost four decades of decline, has created a spectacular macroeconomic anomaly--a crash in oil prices without a recession to cause it.

Now, in response to sharply lower prices, domestic oil producers have shed jobs and cut operating rigs by more than half. [...]

The nimblest and smartest competitors have worked relentlessly to increase their productivity. Leading-edge operators report that they can produce more profitably today at a price of $65 a barrel than they could at $95 a barrel three years ago. Where can they be profitable three years hence--$40 a barrel? $30? The oil patch today is afire with the same technological imperative and competitive mission that has powered the U.S. electronics revolution--think Moore's Law--to dash headlong down the learning curve, crushing costs and prices and making up for it in volume.

Today's surge in production is coming predominantly from wells that are horizontally drilled and hydraulically fractured from drill pads with multiple wells. Because such wells exhaust quickly, many more of them must be drilled. The conventional wisdom is that fracking is therefore less amenable to the economies of scale exploited by traditional methods. But for today's shale operators, that's a feature, not a bug.

For one thing, the increase in the number of wells--which, necessarily, entails a great diversity of geologies and formations--means a commensurate increase in learning about a galaxy of processes that can be tweaked, combined and recombined to increase production and reduce costs. It's simple: When you get more at-bats, you become a better batter.

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