Exploration and production (E&P) operators in the U.S. onshore have been “racing toward perfection” when it comes to improving efficiencies in their drilling operations, but they’ve squeezed about all they can from the wells, according to one analyst.

E&Ps have been working on reducing days/well, wells/rig and lateral lengths, “but the most significant gains are behind us,” said Bob Brackett, a senior analyst with Sanford Bernstein & Co. LLC. “It is asymptotic not exponential. The distinction makes all the difference in the world.”

E&P investors could view this trend as cautiously optimistic, as it avoids a race to the bottom, he said.

“If we combine the observations that the shale plays have all been captured, and the sweet spots of such plays are significantly more prolific than noncore acreage, and quality companies will approach perfection faster and more sustainably than lower quality companies, then steepness in the shale cost curve protects the highest quality operators.”

His team used an equation to illustrate the essentials of unconventional play growth: (rigs) x (wells/rig) x (length/well) x (rate/length) – (decline).

Since 2012, drilling efficiencies in unconventional oil basins have improved with a 21% compound annual growth rate (CAGR). As well, drilling efficiency (wells/rig) has risen by about 13% CAGR. However, that rate is slowing and eventually it is going to plateau, Brackett said.

Variable cost efficiencies, which translate into longer laterals spreading fixed costs across more unconventional rock, rose by 7% CAGR, but lateral lengths going forward should increase only modestly, Bracket said. In part, it relates to production efficiency (liquid rate/unit length), which showed 0% growth.

“Shale was dominated by improvements in the speed of drilling wells and the length of wells, not improving per unit production efficiency,” Brackett said. “The speed of drilling will asymptote (as it did in shale gas plays) and lateral length is similarly set to saturate.”

Unless there’s a “revolution in lean pad operations,” drilling efficiencies will be moving toward single-digit improvement, he said. No more production efficiency gains are assumed for the future.

Shale “technophiles,” said Brackett, have confused “true” efficiency gains with an underlying mix shift of:

Those technophiles, he said, also assume that the trends will continue. However, all of the drilling gains won’t be able to overcome the collapse in the rig count.

Meanwhile, as efficiencies plateau, the “game of musical chairs” is going to stop “and those in the best seats,” such as the Eagle Ford Shale and Permian Basin, will hold the advantage.

The drilling efficiencies provide E&Ps with a clear advantage. But cost deflation in the oilfield services (OFS) sector also has had a positive impact, said Rystad Energy analysts.

“Drilling speed has increased across most plays,” particularly in the Bakken and Eagle Ford shales and the Niobrara formation, “where the average rig was able to drill 30% faster in 2014 than in 2012,” said Rystad head of analysis Per Magnus Nysveen and analyst Leslie Wei.

Only the Permian Basin’s Delaware subbasin has shown a slight decrease in drilling speed because the “checkerboard leasing structure of the play makes it difficult for operators to drill from pads.”

The Rystad analysts looked at the unit cost reductions for 10 U.S. E&Ps and found “an average cost reduction of 23%, where 16% of the reduction comes from lower unit prices and the remaining 7% reduction comes from additional efficiency gains.”

Those price reductions from efficiencies are going to last well beyond the oil price decline. The service fees gradually are going to increase. But overall, breakeven prices for the “main” U.S. oil plays have fallen by about half since 2011, the Rystad analysts said.

“This is because operators are able to produce more as they find sweet spots, and rigs are able to drill more as rig companies better understand shale characteristics.”

That could provide a rosier scenario for E&Ps and the OFS sector once commodity prices strengthen.

Shale has proven to be “a very competitive source of production, and going forward, when prices recover, operators will increase rig counts just as quickly as they dropped them,” said the Rystad team.

Between 1Q2012 and 4Q2014, new oil and gas wells per rig in the United States grew at an annualized rate of 2.9% per year, according to Baker Hughes Inc. data and NGI’s Shale Daily calculations. However, productivity gains were likely higher than this, considering that the average lateral length per well continued to increase in many U.S unconventional formations during this time.