With a spike in global oil demand coupled with crude prices soaring above $100/bbl, analysts expect a significant increase of drilling activity in North America’s largest shale patch—a move that could bring much-needed relief to pump prices.

“The potential for an additional output of 500,000 barrels of oil per day could represent as much as approximately 4% of total U.S. daily production, hopefully flattening both oil and gasoline prices,” Steve Reese, CEO of Reese Energy Consulting Co., told Hart Energy.

Although the Permian Basin is buzzing with activity to pump more for the oil-thirsty world, Reese believes that the producers will not lose sight of shareholder returns and drilling costs.

“The increased activity and capital spend forming in the Permian now will be much more well thought out this time as producers are more cognizant of shareholder returns and drilling economics,” he said.


Post-pandemic Pushback: Permits Rally a Prelude to Pop in Oil and Gas Production

Drilling permits in the Permian saw an “unprecedented period of high activity,” averaging about 210 in the week ending April 3, offering a clear indication that Permian producers are responding to higher prices, according to Rystad Energy.

Additionally, a total of 904 horizontal drilling permits were awarded last month, which was an all-time high.

Rystad Energy

Even though weekly horizontal permit approvals have occasionally spiked above 200 in recent years, but the persistently elevated levels from regulators in Texas and New Mexico are “unprecedented,” the research firm noted.

“This is a clear signal that operators in the basin are kicking into high gear on their development plans, positioning for a significant ramp-up of activity level,” Artem Abramov, Rystad Energy’s head of shale research, said in a note.

“The surge in permitting activity positions the industry for continuous rig count additions in the second half of 2022 and foreshadows a significant increase in supply capacity from early 2023,” he added.

Although the time from permit approval to the start of drilling varies substantially across producers in the same basin, Rystad research shows that the current permit activity trend points to a continuous uptick in drilling in the coming months.

The current surge cannot be classified as a “temporary anomaly” caused by major permitting round timings overlapping. Instead, the trend firmly points to a “robust expansion in activity plans” for Permian drillers that will likely be sustained in the coming weeks.

Another indication of a production surge, Rystad noted, is the higher-than-average number of approved permits recorded by large public and private operators in the Permian although independents took the lion’s share of permits scoring 500 in March.

While Pioneer Natural Resources secured record-breaking 99 horizontal permits in March, Diamondback Energy also recorded an unusually high drill permit activity during the period with 59 horizontal permits approved. Other notable operators in the basin includ Exxon Mobil with 43 permits, Occidental Petroleum with 42 and EOG Resources with 28 permits last month.

Private operators too, are stepping up production and are running half of the total rigs across North America, noted James West, senior managing director at Evercore ISI.

"The private operators are responsive to commodity price signals," West said, adding that "the higher oil price is clearly getting their attention."

Private operators including Franklin Mountain Energy, Birch Resources and Spur Energy Partners secured more permits in March relative to the average rate in the previous 12 months.

According to West, most basins across the U.S. shale have reported growth in permits with the exception of DJ-Niobrara, which saw a 78% month-to-month decline in permitting activity.

"Texas, the clear driver in March’s increase, now sits at its highest permitting levels since October 2014, which marks a whopping 6-and-a-half year high that foresees continued record U.S. production in the mid-term," he said.

However, with a two- to three-month lag between the permitting and spudding of the well, West noted that the spike in permits in the Permian Basin in March suggests an increase in drilling by mid-year. 

While the increase in drilling will result in higher production, U.S. shale producers will have to overcome several hurdles including labor shortages and supply constraints.

"We believe several constraints to production growth exist including limited frac spreads to complete wells, labor tightness and shortages of truckers, sand, [Oil Country Tubular Goods], chemicals and other necessary materials," West said.