Data from Drilling Info Inc. shows the amount of new well permits being issued across the United States dropped 40% in the last month, reports Reuters. The information, which was released yesterday, showed only 4,520 new well permits were issued in November, compared to 7,227 in October.
New permits, which indicate drilling rig activity approximately 60 to 90 days in the future, showed steep declines for the first time this year across the top three U.S. onshore fields: the Permian Basin and the Eagle Ford in Texas, and the Bakken shale in North Dakota.
The Permian Basin in West Texas and New Mexico showed a 38% decline in new oil and gas well permits last month, while Eagle Ford and Bakken permit counts fell 28% and 29%, respectively. In addition, the Niobrara shale in Colorado and Wyoming, the Granite Wash in Oklahoma and Texas, and Mississippian Lime in Oklahoma and Kansas saw respective drops of 32, 30% and 27% in new permits.
This news comes in spite of estimates from the U.S. Energy Information Administration that expect U.S. crude production to surpass 9 MMBOPD in December and continue to rise.
The pullback was a “very quick response” to U.S. crude prices, which settled on Tuesday at $66.88 for light crude Con1, said Allen Gilmer, chief executive officer of Drilling Info. “I think in this case this was just a quick response, saying ‘there are enough drill sites in the inventory, let’s sit back, take a look and see what happens with prices,” he said.
U.S. oil prices fell below $70 per barrel last week after OPEC agreed to maintain an output of 30 MMBOPD. Analysts say the cartel is trying to squeeze U.S. shale oil producers out of the market.
Gilmer’s view is in line with other expert opinions on the matter. During a conference call discussing possible outcomes of the OPEC meeting before the Thanksgiving day decision, Katherine Spector, Head of Commodities Strategy for CIBC World Markets, shared a similar outlook on the topic.
When asked if she thought OPEC was waging a price war, Spector said no, but that the effect could be the same. “Six months of $80 [oil] could weed out weaker U.S. producers and make the strong producers stronger.” Spector said a low price will force U.S. producers to focus on the sweet spots.
As U.S. producers continue to weather the storm of low oil prices, many are looking to continue producing in their already established wells, rather than looking to add more sites to their inventories.
Gilmer said the drop in new permits is a precursor to a decline in rigs. The U.S. land rig count has been largely flat since September, hovering around 1,860 oil and gas rigs, according to Baker Hughes Inc (ticker: BHI). “This will show up,” he said. “I expect we’ll start seeing rig impact in a couple of months.”
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