Low Oil Prices to Slow, but Not Derail US Shale Boom

“Efficiency gains in light, tight oil production have been constant, and price pressures would only provide more impetus for producers to cut costs further,” Bloomberg reported.

New Sale Well Permits Down in November

New well permits across the United States were down 37 percent from October to November of this year, from 7,227 in October to 4,520 in November, according to data compiled by DrillingInfo. The number of new well permits in the Bakken was down from 339 in October, the highest level seen in 2014, to 238 in November. In the Eagle Ford, new well permits declined from 630 in October to 449 in November. The Permian Basin saw the number of new well permits peak at 1,192 in October before falling to 735 in November. Permitting was slightly up in a couple of smaller plays, but down in the majority of plays by 35 to 40 percent from October – which marked the high for permitting – to November. However, the number of new well permits in October of this year were higher than the number of new well permits seen in October 2013.

DrillingInfo began to see a little bit of impact of oil prices on permitting in late October; by mid-November, DrillingInfo was definitely seeing a downward trend. This decline in permitting is consistent with the historical relationship of a three-month lead time between weakening oil prices and a decline in permits, DrillingInfo CEO Allen Gilmer told Rigzone in an interview.

“The thing that interested me was that the number of permits doubled in the past 12 months, while the number of rigs added to the fleet only went up 20 percent,” said Gilmer, noting that he didn’t think the industry could have kept up with the level of new permitting.

DrillingInfo saw a run-up in new well permitting in the past year because companies were pretty comfortable with playbooks and were trying to get as much held-by-production drilling as possible and due to historically great oil prices, said Gilmer.

CAPEX Reductions Anticipated, but US Shale to Remain Important in Energy Market

A month ago, Wood Mackenzie analysts said would have said they anticipated capital expenditures (CAPEX) to decline by 20 percent with double-digit growth still occurring. But with oil prices having crossed below the psychological barrier of $70/barrel, companies will begin making more drastic decisions in terms of spending. At less than $70/barrel WTI, Wood Mackenzie expects CAPEX cuts to stretch to 30 to 50 percent from original plans, R.T. Dukes, senior analyst for upstream research at Wood Mackenzie, told Rigzone.

“We estimate overall that it would take a 60 to 70 percent cut to stall production growth in its entirety from the United States, and the scenario isn’t likely unless prices fall even further,” Dukes said.


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John Benton  |  December 19, 2014
We seem to be lying to ourselves, as usual. The crude price cut is going to be more severe, the damage to intermediate and small producers and drillers much more severe, and Houston is probably headed for a recession.