Shales See Permits Decline By 13% In Second Quarter

E&P permitting was down 13% quarter-on-quarter (q/q) and 35% year-on-year, according to a recent note from Morgan Stanley Research.

The oil-rich Eagle Ford, Permian and Bakken plays led the second-quarter decline, dropping 13%, 5% and 14%, respectively, while permitting dropped 23% in the second quarter for gas plays. Morgan Stanley said companies were feeling the impact of lower commodity prices and responding with further capex cuts and rig count reductions.

The permitting reductions followed an anemic first quarter, when oil play permit applications dropped 32% and gas play applications fell by 35%.

The authors of the report noted that producers are re-formulating their strategies to focus on drilling their highest IRR inventory.

International and offshore projects, because of their long lead time, are focusing the market balancing function on U.S. shale as a key swing producer. “Given U.S. producers’ need and ability to decelerate spending and meaningfully reduce production, we believe the U.S. is a key near-term balancing factor for the oil markets,” they wrote.

Don’t expect a rebound in well permitting and production soon, however.

“We do not expect permitting activity to rebound sharply as any reacceleration plans for the group may be deferred due to lower crude prices and an apparently likely Iran deal,” the authors wrote.

Efficiency gains, improvements in well performance, reduced costs and a relocation of rigs to “sweet spots” will help to offset the permit declines. Top shale producers such as EOG Resources Inc. (EOG) and Anadarko Petroleum Corp. (APC) are purposefully delaying completions.

All shale plays are sharing the same fate, according to the report. Permian Midland Basin permits dropped 5% q/q, while permitting activity fell 4% q/q in the Delaware Basin. In the Niobrara, companies pulled back 16% q/q, and permits were reduced 10% q/q in the northeast Marcellus play and 39% q/q in the southwest Marcellus. In a rare positive note, in the Haynesville/Bossier Shale play, permitting activity increased by 7% q/q, but the Barnett/Barnett Combo shaved 24% of its q/q permitting.

Although important at all times, efforts to reduce costs have been redoubled in the low commodity price environment. Compared to last year, well drilling and completion costs have diminished 13% in the Eagle Ford, 20% in the Niobrara, 15% in the Bakken, 15% in the Permian and 20% in the Utica. Companies have gained efficiency in well drilling times, as well, reducing the amount of time from spud to total depth by 20%, 10%, 15%, 9% and 20% across those same plays, the report said.

Contact the author, Brian Mothersole, at bmothersole@hartenergy.com.