U.S. permits to drill onshore for oil and natural gas dipped in January from December but still climbed by more than half from a year ago, Evercore ISI said Tuesday.

Domestic land permits totaled 3,870 in January, a 22% sequential decline — but 53% higher than in January 2016, said the analyst team led by James West.

The permit declines in active drilling areas should not cause too much angst, as the dip can be traced to usual seasonal factors when exploration and production (E&P) companies were in the process of finalizing their 2018 drilling and completion (D&C) budgets.

“For the fourth straight year, January permitting underwhelmed the prior December total, indicative of both a year-end leasehold uptick in filings and also an early-year dip as E&Ps work on setting D&C budgets,” West said.

“The disassociation between permits and rigs toward the end of 2017 was symptomatic of E&P budget exhaustion and a transitory D&C planning period, but last week’s 29 unit surge in the U.S. rig count is illustrative of a domestic shale market poised to push on the gas pedal even harder.”

Permitting in January fell in California, down 29% month/month (m/m), and in North Dakota, off by 14%. However, West Virginia reported a 21% gain m/m, and Alaska permit requests climbed by 13%.

Texas, where there are more active oil rigs and which is considered the “single-most important state” to evaluate the magnitude and direction of domestic permitting trends, saw permitting decline in January by 5% m/m.

Overall across the U.S. onshore, January permitting improved year/year for the second straight year. Last year surpassed 2016 and 2015 permit levels, with “key petro-states” showing big gains. Texas and Oklahoma each reported a 48% overall increase in 2017 permitting from 2016, while North Dakota permitting climbed 46% and Louisiana rose 13%.

February could test 2017 permit highs, as the four-week average is charging north, West said.

Through last Friday (Feb. 9), U.S. land permitting stood at 2,305, compared to the four-week rolling average of 1,070. The multi-year high of 1,130 was realized in mid-December, following a holiday slowdown.

A 39% increase in Texas permitting drove the recent week/week improvement, and the average of 1,070 implies a February total sharply above 4,000, “which could test the 2017 high of 4,945 in December,” West said.

Commodity prices are finding support around a West Texas Intermediate crude oil price of $60/bbl, which means that concerns of a rig count slowdown “are perhaps overblown by the market.”

As E&Ps settle on their D&C budgets, permitting should continue trending higher, and the state-of-the art, high-spec rig market should tighten as rigs are raised.

More rigs also should “place the onus on the pressure pumpers to continue a moderated buildout cycle,” West added.

Most onshore permits are issued several months before drilling begins, while offshore permits often are secured further in advance.

Oilfield services (OFS) and equipment, including a stronger call for proppant sand, oil country tubular goods (OCTG) and water, are benefiting from improving permit requests and the rising rig count.

“A combination of permit upside and rig count resilience have slightly elevated out-year projections for sand, OCTG, and water,” West said.

Evercore has revised higher its U.S. land rig count estimates through 2019. If the permitting and rig count levels were to exhibit continued resilience, West said the U.S.-centric coverage would benefit from better-than-expected activity throughout the OFS value chain, compared with its recent E&P spending survey, which is forecasting U.S. capital spending to increase in the mid-to-double digits year/year.

Gulf of Mexico (GOM) permitting remains tepid, while planning remains stagnant, according to data compiled by Evercore. The January new permit total was 17, 21% higher m/m and 13% higher year/year.

Shallow water permitting rose by half to three in January. Ten new midwater permits were filed, up 25% m/m, while deepwater permits increased by one to four. No ultra-deepwater permits were filed in January, the fifth without permits in the past seven months, according to data compiled by Evercore.

“We believe that offshore drilling (and specifically jackup utilization) is starting to turn the corner, but continued attrition/consolidation will be critical in supporting slowly improving permit and drilling activity,” said West and his team. “On the offshore planning front, January saw no new filings, as operators spent the month preparing budget plans.”