Texas rig permitting nearly doubles from 2016

Contacts to the Federal Reserve Bank of Dallas said the current pace might not be sustainable and could potentially decline.
By Daniel J. Graeber   |   Aug. 11, 2017 at 8:50 AM
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Aug. 11 (UPI) -- Accounting for about half of all the active rigs in the United States, the energy regulator in Texas said total drilling permits nearly doubled from last year.

The Railroad Commission of Texas, the state energy regulator, said it issued 1,011 original drilling permits last month, compared with the 631 issued in July 2016. Of those, 893 were for drilling new oil or natural gas wells.

According to the U.S. Energy Information Administration, Texas shale is the most productive in the nation. Based on its latest drilling productivity report, the EIA expects production from the Permian shale basin to increase 2.5 percent from July for about 2.5 million barrels per day. Eagle Ford production would increase 2 percent to 1.38 million barrels per day if EIA forecasting is accurate.

A report from global consulting firm McKinsey & Co. found that, under a scenario where crude oil prices move above $60 from 2019, output from the Permian shale basin in Texas, one of the more lucrative reservoirs in the country, could drive about 20 percent of the growth in exploration through 2021, in part because efficiency has improved.

Gauged by rig counts, the Federal Reserve Bank of Dallas said activity has expanded exponentially from last year, but has held more or less steady during the second quarter. A Fed survey of energy industry contacts said the pace of the increase, however, might not be sustainable and could drop off in the second half of the year.

Based on production per rig, EIA data paint a different scenario. New-well oil production per rig declines both for the Permian and Eagle Ford shales. Productivity in the Permian shale basin in Texas is on pace to decline because operators are drilling wells, but not completing them, a process used to prep it for production. Oil flows only when a well is completed. When it's not, output per rig declines.

The Permian region is expected to represent about 30 percent of total U.S. crude oil production next year. Total U.S. crude oil production is on pace to reach 9.9 million barrels per day next year, a 6.5 percent increase if EIA forecasts prove accurate.

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