U.S. land permit filings rose 27% month/month in February and were 78% higher year/year at 3,211, the highest monthly permit total since November 2015 and the first February/February jump since 2014, according to data compiled by Evercore ISI.

Permitting in 2016 had declined 38% from 2015 had fallen 46% from 2009, when drilling activity was considered to be in a trough from the 2008 peak, said analyst James C. West.

Relatively strong permit numbers in Colorado, which saw permits rise 69% month/month (m/m) from January, as well as in Louisiana (42%) and Oklahoma (46%) "bolstered February U.S. land totals, offset by declines in California (minus 18% m/m), North Dakota (minus 36%), and Wyoming (minus 12%)," West said. "Texas permitting exhibited a whopping 37% sequential decrease, which served as a strong tailwind for improvement elsewhere."

Nearly half of the working U.S. oil rigs are in Texas, which "continues to be the single-most important state in terms of evaluating the magnitude and direction of U.S. permitting trends, although we expect states located in the peripheral shale oil basins (Niobrara, Woodford and Bakken) to continue their positive trajectory as oil prices improve and 'fringe' acreage becomes economical."

During a conference call on Monday to discuss the oilfield services sector, West said the pace of the recovery in North America is surprising to the upside, and "the bottom is clearly in."

Evercore issues a monthly U.S. drilling permit report, compiling data from states and the Department of Interior's Bureau of Ocean Energy Management, which require filing/approval of drilling permits before an exploration and production company drills a well or bypass/sidetracks an existing one. Most land permits are submitted through an individual state oil and gas/well drilling board, while offshore/Alaska permits are reviewed and approved by Interior's Bureau of Safety and Environmental Enforcement.

Most onshore permits are issued months before drilling begins, while offshore permits are in hand even further in advance.

"Despite being just two full months into the year, U.S. land permitting is already 25% of the way toward eclipsing the 2016 total," West said. Based on the permits filed year-to-date, Evercore said:

  • U.S. permitting is up 53% year/year, with Texas, Colorado and California outperforming by at least 100%;
  • California permitting is up the highest from 2016 at 335%; and
  • Gulf of Mexico permitting has fallen after two months of consecutive gains, but one ultra-deepwater permit was filed.

West's team plotted seven major oil and gas states over the last 12-month period and determined "operators in nearly every major U.S. shale oil basin are preparing to put rigs back to work, as evidenced by uniformly positive y/y differentials in every state (ex-Pennsylvania, a natural gas state)."

The rising permit load bodes well for U.S. activity, "not only as a possible moat for a near-term pullback in crude prices, but also as a sign that the market will remain relatively elastic given a surprise to the upside in oil prices."

Pennsylvania continues to see "weak" permit activity from a year ago. However, even during the downturn, negative differentials in the state "were not too destructive to overall permit totals," West said. "Recent legislative changes related to Northeast pipeline buildouts, in addition to a possible leg-up in natural gas pricing...could serve as support" for permitting and drilling activity moving forward.

However, the Haynesville Shale, he said, has been "the popular gas basin lately as rigs operating the Haynesville have nearly caught up with the Marcellus total, and will likely edge higher.”