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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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U.S. Oil Supply To Fall Faster Than Expected

Key package of statistics released on U.S. oil and gas activity this week, from the national Bureau of Land Management (BLM).

And one number in particular stood out. Showing how drilling activity in key U.S. plays is declining at an unprecedented pace.

That figure is the number of unused drilling permits on federal and tribal lands across America. Which the BLM said hit a record high during the fiscal year 2015.

According to BLM statistics, there are now 7,500 inactive drilling permits issued to oil and gas operators (6,100 permits on federal lands and another 1,400 on tribal lands under BLM purview). With these licenses currently sitting idle while operators wait to see if they want to indeed take up their rights to explore and develop. Related: The Halliburton-Baker Hughes Merger is Falling Apart. What Happens Next?

BLM officials noted that’s the highest total ever seen for inactive drilling permits. With the current 7,500 unused permits equating to about four years’ worth of drilling activity, at current average drilling rates across the country.

One interesting point is that the negative turn in drilling appears to have happened quite recently. With the BLM noting that new permits issued during fiscal 2015 actually increased as compared to 2014 — with 4,228 permits being issued in the past year alone, up 10 percent from the previous year.

That suggests E&Ps were still relatively bullish in 2015 — pursuing new lands for lease in order to grow their inventory of drilling opportunities. Related: Chevron, Shell, and Total See Credit Ratings Slashed

But the reality on the ground has obviously proven much different than expectations. With the big jump in unused permits showing that few oil and gas firms have been willing to actually set aside budgets for drilling new lands.

Of course, this has big implications for production. Which is now falling at almost all major plays across the U.S. It also suggests that things could ramp up relatively quickly if oil and gas prices recover, spurring E&Ps to drill down on their inventory.

Here’s to bullets in the chamber

By Dave Forest

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  • Corky Stewart on April 14 2016 said:
    My neighbor is the head of the BLM office in Carlsbad NM. Last week he told me they have over 1300 completed permits on file in their office, that should help us once oil gets back over $50
  • K on April 14 2016 said:
    Three points:

    1. "Production" should be used instead of "supply" in the title because what you really mean is production. Your use of the word "supply" makes the title very misleading.

    2. That said, you don't present a link between unused permits and declining production other than an assertion of "big implications." The permits that ARE being drilled are probably those in the most productive/proven areas, which mitigates your presumption.

    3. You fail to account for lag time between permit application and BLM issuance, which can take up to two years depending on the regional office that processes it. The record high for ISSUED permits in 2015 really speaks to the bullishness of operators back in 2013-Summer 2014.

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