A recent decline in US land drilling permits is most likely the result ofholiday-related lulls, rather than sharply lower oil prices, analysts saidthis week.
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As NYMEX oil prices have fallen to the mid-$50s/barrel level and heldthere for the past week or so, the number of issued land drilling permitsappears to be largely in line with historical averages.
A look at permitting activity stretching back to mid-June, when oil beganits descent from about $107/b, shows that while permitting is down from sixmonths ago, the drop has not been severe.
And even the sizable late-November decline in permitting was in line withthe typical seasonal pattern given that permitting activity usually fallsduring the US Thanksgiving Day holiday, analysts said.
A few weeks ago "some people were saying [the low number of permits] wasa sign of the rig downturn, but in fact what they did was seize on thetraditional seasonal downturn and try to extrapolate from there an earlywarning sign of an industry collapse," Bob Williams, director of news and analysis for RigData, which collects rig and drilling data, said.
"I'd be the last person to say we're not headed for a downturn, and Ithink it's obvious in 2015," Williams said. But "when permits dropped sosubstantially a few weeks ago, that was a typical Thanksgiving drop."
For example, 800 permits were issued the week ended November 28 -- theweek of Thanksgiving, according to RigData's numbers. That was down from 1,101issued the week ended November 14 and down from 1,226 permits issued in theweek ended October 31.
Even before that, permitting bounced around: 1,137 permits were issued inthe week ended October 17, 1,314 for the week ended October 3, 1,295 for theweek ended September 19 and 1,008 for the week ended September 5 -- which inthe US was the week following Labor Day.
The numbers include only permits issued for oil and gas drilling andexclude workovers, plug-and-abandon well permits and other non-petroleumdrilling-related permits.
"Over the last three years, the average number of new US land permits hasdeclined by around 3% sequentially in December," UBS analyst Angie Sedita saidin a recent investor note. "We expect to see a sharp decline in permits overthe next few weeks heading into the New Year given the recent pull-back in oilprices."
Land permits are a leading indicator of drilling activity, she said,historically showing roughly a 60-90 day lead time to rig activity.
Comparing permitting figures from this year with 2013 -- a boom year forindustry with oil prices largely staying in the $90s-$100s/b -- shows similarnumbers and patterns.
During the week ended November 29, 2013 (Thanksgiving week), 837permits were issued, just 37 more than in the corresponding week of this year.In the week ended December 13, 2013, permitting was back up to 1,184 -- 60more than the 1,124 issued during the same week in 2014.
Last year, in the week ended December 27, 2013, permitting had againfallen to 640, down 43% in two weeks.
"It's not unusual to have the permit number fluctuate a lot" under normalcircumstances, although permitting is typically down during the US'November-December holiday season, Williams said.
At other times of the year, fluctuations "might be weather-related, ormight be someone who processes permits can't get to work," or an unusuallyhigh number of applications that for staffing reasons can't all be processed,he said. Or sometimes for strategic reasons a producer might not want to alertcompetitors to its drilling plans.
"There are some pretty mundane reasons for a lot of these conditions," headded.
Other data shows that in six of the US' most prominent unconventionalplays permits have dropped in the last few months, but not by very much. Andeven December's permits appear healthy so far.
Platts unit Bentek Energy's said in the Bakken Shale, Eagle FordShale, Permian Basin, Powder River Basin, Denver-Julesburg Basin and AnadarkoOklahoma 2,089 permits were issued in November and 1,502 in Decemberthrough the week ended December 19.
That compares with 2,530 permits in September, 3,058 permits in August,2,315 in July and 2,572 permits in June.
It also compares with 1,567 permits in September 2013, 1,943 permits inOctober 2013, 2,394 permits in November 2013 and 1,870 permits in December2013, the data show.
"Permitting isn't always the best indicator to rely on" for futuredrilling activity, Bentek energy analyst Kaitlin Meese said.
"For example, in the DJ Basin, October permits plummeted to 64 from 517in September . However, November permits jumped back to 425," Meesesaid. "This ... proves that permitting can be a misleading indicator when it'sevaluated on a month-by-month basis. It's better to look at permits overtime."
Also, viewing raw numbers without context can lead to faulty conclusions,she said.
In the Eagle Ford Shale in South Texas, for example, "productioncorrelates closely with permitting," Meese said. But in the Permian's Delawaresub-basin in Texas, the correlation is not so close.
"I think there are some more complicated well dynamics going on in thePermian case that make it more difficult to make interpret permitting as aleading indicator" of future drilling activity or production, she said.
--Starr Spencer, email@example.com--Edited by Jeff Barber, firstname.lastname@example.org