A report released Tuesday by Norwegian energy consultants Rystad Energy indicates that new horizontal drilling permits across the United States dipped to a 10-year low in July, with the sector unlikely to recover this year.
In addition, Rystads analysis of the top 50 oilfield service (OFS) firms shows staff levels in the sector also fell to their lowest level in 10 years as activities continue to decrease and companies strive to maintain their levels of revenue per employee. The CCP (Chinese Communist Party) virus has decimated demand for petrochemical products in 2020, hitting smaller fracking companies and oilfield service providers particularly hard.
Drilling Permits at New Lows
According to Rystad Energy, only 454 permits were awarded in July in the United States for horizontal drilling—the lowest level since September 2010. However, monthly numbers of permits in 2010 reflected an industry on the rise: Over 1,000 permits were issued every month from early 2017 through to the beginning of 2020.
US permits for new horizontal drilling dip to 10-year low, hinting no strong rebound in 2020 activity.
— Rystad Energy (@RystadEnergy) August 11, 2020
Drilling permit awards are not usually viewed as a reliable predictor of future drilling activity by the industry, as companies tend to hold an inventory of permits to facilitate their response to market conditions. However, the Rystad report indicates that the majority of producers have responded to the market downturn by cutting any avoidable costs—including obtaining new permits.
“This signals the continuity of reduced activity levels throughout the remainder of 2020 at the current strip prices,” said Artem Abramov, head of shale research at Rystad Energy in a statement. “Unless WTI oil prices move towards $50 per barrel in the next few weeks, a rig activity rebound is unlikely before the first half of 2021.”
Rig Count Drops in July
Rig count data from Baker Hughes shows that the number of horizontal oil rigs across the United States has declined 75 percent from its peak of 620 in March 2020, Rystad Energy states, averaging 150 to 160 throughout July. Horizontal gas wells are down 62 percent from the same period in 2019.
— Baker Hughes (@bakerhughesco) August 7, 2020
The highly productive Permian Basin of west Texas and southeastern New Mexico now makes up 78 percent of total onshore oil rigs, up from 62 percent at the start of the year. On a geographic basis, half of all oil producing counties are now in the Permian Basin.
Cost Cutting, Job Losses
The Petroleum Equipment & Services Association (PESA) reported on Monday that while the U.S. economy had added 1.8 million jobs in July, preliminary data from the Bureau of Labor Statistics suggest that OFS employment had fallen by over 9,000 jobs, with total pandemic-related oilfield job losses estimated at almost 100,000. Over 59,000 of those jobs had been lost in Texas alone, according to PESARead More – Source