- DAILY GPI
- MEXICO GPI
- SHALE DAILY
U.S. land permitting year-to-date has surpassed the full-year total for 2016, led by nearly irrepressible gains in the Permian Basin of West Texas, according to an analysis.
Evercore ISI’s latest U.S. Drilling Permit Monthly issued on Tuesday reviewed state and offshore permits, which have to be filed and approved before an exploration and production company (E&P) may drill a well or bypass/sidetrack an existing well. Most onshore permits are issued several months before drilling begins, while offshore permits often are secured even further in advance.
According to the latest talley, U.S. land permitting totaled 3,334 in August, flat from July’s 3,338 but 46% higher than year-ago levels, said Evercore’s James West. Year-to-date, 2017 permit levels overall are 61% higher from a year ago.
Year-to-date, Texas drilling permitting has jumped 69% and Oklahoma has risen 65%, while North Dakota and Louisiana each have gained 29%.
The gains highlight a strengthened business climate, following a sharp drop-off in permitting during 2016, which was down 38% from 2015 and 46% from 2009, when drilling activity was considered to be in a trough from the 2008 peak.
Momentum thus far in 2017 “indicates that year-end totals will finish significantly higher” than the estimated 40% increase in North American-focused capital expenditures, based on Evercore’s most recent E&P spending review, West said.
It wasn’t all sunshine and lollipops during August, with permitting during August down from July in Ohio, by 64%, in Oklahoma, off 16%, and in Wyoming, down 21%. The declines offset gains month/month in California, up 23%, and New Mexico, which climbed 61%.
Texas permitting in August “exhibited a 19% sequential increase on the back of a 27% decrease the month before,” and it was the first sequential increase in three months, West noted.
Texas, which now is running more than half of all the Lower 48’s working oil rigs, remains the “single-most important state in terms of evaluating the magnitude and direction of U.S. permitting trends,” West said.
Beyond the Permian, the Eagle Ford Shale, Granite Wash formation and resurgent Haynesville Shale “have provided incremental activity improvement as exhibited in the 2Q2017 permit count.”
The improvement has exacerbated the oilfield services (OFS) capacity shortage in the Permian, “as out-of-basin crews have begun migrating back to home base to service more local rigs.”
The rig count growth also could stall as operators focus during 3Q2017 on working down a robust backlog of drilled-but-uncompleted (DUC) wells.
Guidance offered during 2Q2017 conference calls by many of the publicly held E&Ps points to a “potential rollover in the U.S. rig count,” but a “firming of oil and gas prices could invite a bevy of drilling activity driven by smaller private operators/independents.”
Based on third quarter to-date permit totals, Evercore expects the U.S. land rig count to average 905 in 3Q2017 and 923 in 4Q2017, “although we note that the Baker Hughes Inc. rig count would have to pull back appreciably in order to hit these conservative estimates.”
Evercore’s third quarter rig count estimates are lower in the Permian and Eagle Ford, where the rig count has been resilient relative to the estimated pullback in permitting. To date in the third quarter, permitting is down 36% in the Eagle Ford and 3% in the Permian.
Year-to-date through Aug. 11, U.S. land permitting stood at 1,792, with the four-week rolling average of 888 down slightly from the last 12-month-high of 903, which was achieved in June.
“Despite a 23% decrease in Texas permitting week/week, the 896 permit/week run rate implies an August total over 4,400, above the year-to-date high of 4,357 in June,” West said.
Based on recent OFS pricing anecdotes, the industry appears close to accelerating its buildout of completion-related service capacity, “which should serve to at least temper the growth in the DUC inventory…”
September has historically been a relatively weak month for permitting during an upcycle, “but we could see independents rushing to drill up leases at current crude prices. On the flipside, a rig count slowdown at this point would do little harm to our North American-specific activity and earnings projections…”