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Drilling permits stout despite oil price drop

Drilling permits statewide indeed dropped by about 50 percent from October to November, but a closer look at those figures, broken apart by region, offer less cause for sudden alarm realized earlier this week, according to an analysis of more detailed data provided on Wednesday by DrillingInfo, an industry data firm.

October in the Permian Basin saw 1,192 drilling permits issued by the Texas Railroad Commission.And that did fall by about 38 percent to 735 permits in November.

But that could be a mere blip in monthly data, rather than a sign of impending plummet, according to oil industry experts. The Octoberdrilling permit totalwas greater than any other month this year, while the November figures remained close to the 787 permits issued in June, when West Texas Intermediate oil prices peaked at more than $104 per barrel.

To be sure, WTI on Tuesday was roughly 40 percent lower than it was back then, closing $64 per barrel.

The price continued to rebound, after dropping about 10 percent in a day after the Organization of Petroleum Exporting Companies on Thanksgiving Day decided not to reign in production in the face of weakening demand and oversupply in part created by the United States shale boom.

Prices have not settled and predictions vary about how long the low price environment will last. But producers are still discussing plans of scaling back and economists who study the Odessa and Midland area still expect the effects to bleed into local economies.

“A lower oil price means less cash flow and it means less drilling,” said Steve Pruett, CEO of Elevation Resources, a private-equity backed oil company planning to scale back rigs drilling horizontally in the coming year.

But the oil production is not a tap that producers can all of a sudden switch off, with already laid plans, wells drilled but not completed, contracts for rigs and pressure pumping in place, and so forth.

And most observers expect the estimated 1.8 million barrels a day produced in the Permian Basin to climb further before a slowdown becomes palpable.

The Energy Information Administration projects growth of about 50,000 barrels per day in December.

“The industry is going to stay really busy in December, because these guys have to drill all these wells and the frack guys are going to have to come back and complete them,” said Kirk Edwards, CEO of Latigo Petroleum, which operates in the Panhandle.

Edwards was one of those pointed to the drop in November drilling permits as a sign of a slowdown.

But the Odessa oilman also argued that the Permian Basin’s current permit numbers mirror June

Related: 38 new drilling permits issued in Utica Shale region

‘A lower oil price means less cash flow and it means less drilling.’

STEVE PRUETT

CEO of Elevation Resources

and this time last year when “it was busy as hell.”

The Permian Basin’s November drilling permit totals also dwarfed those of other drilling hot spots — more than the combined totals of the Eagle Ford of South Texas and the Bakken of North Dakota.

“That permit count jumps way up and way down by month,” Edwards said. “We can’t look at it by one month and make a trend out of it.”

A trend should emerge through the next few months, however, expects Karr Ingham, an Amarillo economist who studies the Odessa and Midland economies, along with the Texas oil and gas industry. He called the October and November numbers “really stout” but predicted they will not last.

“I’m telling you these permit numbers are about to take a dive,” said “That’s right around the corner.”

But that corner, he said, could be in February. And how deep of a dive remains unclear.

 

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