Growth in Permian Basin drilling activity is being led by large, public E&Ps as smaller, private producers pull back on rig activity, data shows.

U.S. shale producers continue to add drilling rigs in key basins, despite volatility in oil and gas prices.

Three oil-directed drilling rigs were added in the Permian region in the past week, oilfield services company Baker Hughes reported on March 24. Of the 88 additional rigs that Lower 48 E&Ps put into operation in the past year, 34 of them were added to the Permian, per Baker Hughes data.

The companies that added the most drilling rigs in the Permian over the past year have been large, publicly traded E&Ps, according to data analysis from Blackbird BI and WellDatabase through March 17.

Operators such as Exxon Mobil Corp., Devon Energy Corp., Chevron Corp., Apache Corp., BP and Permian Resources have continued to be active since the start of 2023, particularly in the Delaware sub-basin.

Smaller, private E&Ps scaled back on drilling in the Permian so far this year. Companies such as CrownQuest Operating, Iskandia Energy Operating and Mack Energy led private rig reductions in 2023, data shows.

Source: Blackbird BI and WellDatabase

Most Active Permian Operators by Rig Count

Operator March 17 Jan. 6 Change
Pioneer Natural Resources  22 22 0
Occidental  16 23 -7
Mewbourne Oil  20 19 1
Diamondback  16 22 -6
EOG Resources 19  17 2
Exxon Mobil 17 15 2
Devon 18 14 4
Endeavor 15 14 1
ConocoPhillips 10 12 -2
Chevron 9 6 3

A few large publics, including Occidental Petroleum Corp. and Diamondback Energy, also pulled back on their drilling efforts in the Permian this year.

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Tale of two shales

When it comes to the split between public and private rig activity in the Permian, commodity prices and midstream considerations seem to be weighing on producers, said James Taylor, senior analyst with East Daley Analytics.

Operators are largely targeting the Permian Basin for crude oil. But Permian oil wells are producing a lot of associated gas, which is constraining takeaway capacity, Taylor said.

“It’s the big publics with fixed transport out of the basin and that have signed space on the major egress pipelines that seem to be adding” rigs, Taylor said.

Natural gas production in the Permian has been rising steadily since 2012, according to the U.S. Energy Information Administration. Even while Henry Hub gas prices have slumped to their lowest point since September 2020, Permian gas production is expected to grow to a record 22.49 billion cubic feet per day in April, the EIA forecasted earlier this month.

Crude oil prices have also been pushed down in recent weeks due to the crisis in the banking sector, concerns about a broader economic slowdown and weakening demand.

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While public supermajors and majors are more insulated from volatility in oil and gas prices, private producers running a few rigs in the Midland Basin might have to pull back on drilling.

“[Privates] are a lot more sensitive to these 10% price fluctuations in WTI, and especially gas,” Taylor said.

Drilling and completing wells is also a lot more expensive now than it was just a few years ago.

Upstream operators in both oil and gas basins have been willing to pay inflated service costs more in line with $80 oil and $5 gas, analysts at Tudor, Pickering, Holt & Co. wrote in a March 23 research note. 

Rig reshuffle hits midstream

The changes in rig allocations by public and private operators are having effects on midstream systems in the Permian depending on the producers they serve, Taylor said.

Midstream gathering and processing operators benefitting from changes in the Delaware sub-basin include Enterprise Products Partners, Targa Resources’ Lucid South Carlsbad system, EnLink Midstream, DCP Midstream and Brazos Midstream, East Daley reported in a March 22 research note.

Meanwhile, Kinetik, Energy Transfer and Targa’s Delaware system have seen slowing rig activity, mostly due to reductions of private rigs.

“If we see an EOG [Resources] rig next to a Targa pipe, generally on the G&P [gathering and processing] system that is a very, very high chance of being a Targa volume,” Taylor said. “With every rig, we assign it to a specific G&P system.”

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More rigs this week

Operators in Lower 48 basins added four more rigs during the week ended March 24, according to the most recent Baker Hughes rig count.

The Permian led the group, adding three more drilling rigs over the week.

The Denver-Julesburg Basin (D-J Basin) and Niobrara Basin in Colorado and Wyoming added another rig. Oklahoma’s Cana Woodford Shale play added its first natural gas-directed drilling rig since September 2019, per Baker Hughes data.

Additions were offset by rig reductions in the Mississippian and Granite Wash plays.