New U.S. well permits rise slightly in December after crude oil plunge

January 11
6:49 PM 2015

New oil and gas well permits issued across the United States rose slightly in December and surged 72 percent in Colorado and Wyoming after falling sharply in November on tumbling crude prices.

Permit counts provided exclusively to Reuters by data firm Drilling Info showed 4,551 new well permits were approved last month, up less than 1 percent from November's count of 4,523.

New permits plunged nearly 40 percent in November compared with October, signaling a potential slowdown in the shale oil and gas boom that brought the United States head to head with Saudi Arabia as the world's top crude producer. 

Crude oil prices have plunged 55 percent since June as demand has not kept up with hefty global supply, including that from the U.S. shale oil boom.

Allen Gilmer, chief executive officer of Drilling Info, said the December counts were equivalent to December 2013 and January and February last year.

"What has been lost is the 2014 adds," he said.

New permit counts help indicate what drilling rigs will do several months in the future.

But they do not capture what many analysts consider better predictors of output: the length of new wells being drilled, and the number of points along each well being hydraulically fractured to coax oil out of tight rock.

Vikas Dwivedi, global oil and gas strategist for Macquarie, said a sharp drop in new permits in a single month is not as reliable a sign of a pullback than consistent drops over three months.

Gilmer said the data helps illustrate that producers are focusing on high-producing wells, backing off marginal areas and, in some cases, drilling to hold acreage.

Baker Hughes Inc's (BHI.N) average December U.S. land rig count was 1,684, down 60 rigs, or 3.4 percent from November, but up 0.4 percent from a year earlier.

Among major U.S. oilfields, new permits issued in the Permian Basin in Texas and New Mexico rose 0.3 percent in December to 638, after having fallen 38 percent in November. Permian output is expected to reach 1.87 million barrels per day this month, according to the U.S. Energy Information Administration.

The Eagle Ford shale in South Texas saw new permits rise 2 percent to 382 after November's decline of 28 percent. And new permits issued in North Dakota's Bakken shale rose 5.4 percent to 252 last month after declining 29 percent in November.

The EIA said Eagle Ford production would reach 1.68 million bpd this month, and Bakken output would be 1.25 million bpd.

The most stark reversal among the 13 individual fields tracked by Drilling Info was in the Niobrara shale in Colorado and Wyoming, where new permits issued rose 72 percent in December to 541 after having fallen 32 percent in November. The EIA projects Niobrara output to reach 382,000 bpd this month.

Gilmer said rigs in the Niobrara, unlike the bigger oilfields, largely drill vertical wells rather than horizontal, allowing producers to save costs by using older or cheaper rigs.

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