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US permits for new horizontal drilling dip to 10-year low
Published in The Saudi Gazette on 11 - 08 - 2020

US horizontal drilling activity in oil basins, which has plummeted due to the COVID-19 pandemic, is not likely to materially recover this year, a new Rystad Energy analysis shows. Drilling permits, which are increasingly reliable indicators of future activity levels, dipped to a 10-year monthly low this July, with only 454 awards.
July's drilling permits number is the lowest since September 2010, when horizontal permits in oil basins amounted to 438. But unlike the current situation, activity then was on the increase, while the current downturn is still under way.
Comparing to the previous downturn, the lowest count was in January 2016, when only 622 permits were awarded.
Drilling permits have generally been viewed as low quality predictors of future drilling activity, as operators have a tendency to overbuild their inventory of permits.
However, the quality of predictions based on permits has improved considerably, as producers have become more disciplined in the current capital environment and market downturn.
After a collapse in permit activity between March and May, June was the first month to see recovery in permits across all oil basins, driven by the Permian.
This signaled that the decline in the rig count was bottoming out, with the outlook subsequently stabilizing in July. Permitting activity, however, slowed again in July.
"This signals the continuity of reduced activity levels throughout the remainder of 2020 at the current strip prices. Unless WTI oil prices move towards $50 per barrel in the next few weeks, a rig activity rebound is unlikely before the first half of 2021," says Artem Abramov, head of Shale Research at Rystad Energy.
An analysis of Baker Hughes data, shows that the horizontal oil rig count in the US declined by 75% from the peak of 620 rigs in early March 2020, and has hovered around the 150-160 range since early-July.
Gas-focused horizontal rigs have been flat at 55-60 over the last few weeks, 62% lower than in June 2019. The Permian Basin now accounts for 78% of the total onshore oil-focused rig count, increasing from a share of 62% in February 2020.
A flat rig count absolutely does not imply that there has been no weekly changes in the total. Some weekly changes are always registered from the movement and reallocation of rigs, combined with some operators still continuing to gradually lower their rig programs (e.g. ExxonMobil in the Permian), with others restoring modest drilling operations (e.g. Parsley Energy).
The extent of the weekly changes in the last few weeks, however, corresponds to normal fluctuations that are seen when activity levels are steady.
The number of active counties (i.e. counties with at least one horizontal oil-focused rig) in the US increased from 30 to 32 last week. Drilling operations were restored in the Ward, Borden and Glasscock counties (all in Texas and all within the Permian Basin).
But Gonzales County in the core Eagle Ford saw the departure of its last active rig. As a result, the active county tally in the Permian increased from 13 to 16, and half of active oil-focused counties in the US are now in the Permian Basin. — Rystad Energy


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