Permian could see increase in production as new permits reach the highest level

Horizontal drilling permits for new wells in the Perm basin reached a record high in March with 904 total permits, driven by increased oil prices and production demand, Rystad Energy research shows. Weekly approved permits have been between 188 and 227 since March 7, 2022, an unprecedented period of high activity that pushed the four-week average to 210 for the week ending April 3, a record for horizontal permit approvals in Central American slate area. four weeks.

“This is a clear signal that the operators in the pool are setting high gear with their development plans, and they are positioning themselves for a marked increase in the level of activity and an acceleration in the rate of production expansion over the next few months, when bottlenecks in the supply chain are declining .. The increase in licensing activity positions the industry for ongoing additions to rig numbers in the second half of 2022 and warns of a significant increase in supply capacity from the beginning of 2023, ‚ÄĚsays Artem Abramov, Rystad Energy’s head of slate research.

However, it is advisable to exercise caution when using these figures as a concrete indicator of future drilling plans. Many permits are never drilled, and operators follow different permitting strategies – in other words, the time from permit approval to drilling starts varies significantly across manufacturers in the same basin.

Even with this warning, the current trend in permit activity points to a continuous increase in drilling in the coming months. Weekly horizontal permit approvals have occasionally risen to over 200 in recent years, but the persistently elevated levels currently seen by regulators in Texas and New Mexico are unprecedented. It is therefore impossible to classify the current increase as a temporary irregularity caused by large allowable round timings overlap. Instead, the trend reflects a robust expansion of activity plans for many Permian operators.

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Degradation of the basins

The regular monthly average for permit approvals varies between 400 and 500 locations, making the scale of the sequential increase between February and March particularly extreme. The Delaware and Midland parts of the basin contributed to the increased licensing activity last month, although only Midland delivered at a record high. The Delaware Basin ended the month with 398 approved horizontal permits – comparable to the driving speed of permit activity recorded in the second quarter of 2021, supported by the federal permit stock post-moratorium in the New Mexico portion of Perm.

Privately owned operators completed with nearly 500 new horizontal drilling permits approved in March – greater than the number of wells currently being drilled in Perm in a given month by all operators. Public independent producers also saw a significant increase, being allocated 410 horizontal locations – an unusually high number compared to their usual range of 230 to 320 in recent months.

Another indication that the increase in permit activity is structural is the number of permits obtained by the largest contributors to Perm permits in March compared to their typical monthly counts over the last 12 months. As many as 10 of the 22 largest contributors experienced higher activity in March than their maximum monthly numbers between March 2021 and February 2022. Pioneer Natural Resources stood out with 99 horizontal permits approved in March – a record high for the operator’s portfolio on a professional-shaped current operating basis . Diamondback Energy was another public producer with exceptionally high activity in March with 59, while Franklin Mountain Energy, Birch Resources and Spur Energy Partners were the most important among private operators in terms of the number of permits in March compared to the average rate in the previous 12 months.

As many as 81 unique operators received at least one new horizontal drilling permit approved in Perm last month – a record number of active operators and a significant increase from the typical level of around 60 active operators per year. month observed in the second half of last year. Other major oil regions outside Perm – Bakken, Eagle Ford and Niobrara combined – also delivered a healthy increase, with 61 unique operators receiving new licenses in March. Eagle Ford in South Texas contributed most to this activity expansion.

Although licensing activity in March may to some extent end as an outlier, at least in part driven by the timing of major rounds, there is a clear indication that the industry is heading for a new increased licensing percentage, which is likely to be maintained over the coming weeks.

By Rystad Energy

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