NEW YORK – Evercore ISI’s Oilfield Services, Equipment & Drilling group has released its US Drilling Permit Monthly Report for June, an update that provides refreshed permit data for US drilling activity.
Due in part to the significant lease costs, legal fees, and surveying that occur even before drilling or re-entry begin, Evercore ISI said that these permitting numbers are a leading indicator for near-term drilling activity.
The monthly update reported good news for the sector immediately: May total of 16 new permits improved 23% from April, and were on par with the permit total from April 2015. New well permits doubled from six to 12, with a particularly accentuated increase in deepwater (increased from one in April to six in May).
Bypass permits fell from four to two, which Evercore noted as evidence that execution on new well projects is improving. It also observed that sidetrack wells also fell from three to two over the past month.
However, the news could be tempered by the reported numbers of ultra-deepwater and shallow-water permits. Ultra-deepwater permits have remained relatively consistent due to their infrequency, although ultra-deepwater plans have all but evaporated heading into 2H 2016, the report noted.
The June report showed that the sharpest decline year-over-year since 2014 has been the shallow-water permitting, down 87% from this time last year. Just three total new permits were issued for shallow-water wells, down 93% from 2014.
“We believe that offshore drilling will continue to show anemic movement as long as shallow-water permits remain at historically low levels,” the analyst group said.
“On a more positive note, well plans increased from seven in April to 11 in May. All 11 new exploration plans were probably the result of seasonal drilling increases as 2016 exploration budgets were finalized in 1Q.
“Despite monthly permitting gains, we remain cautious in showing optimism for the offshore space, as crude prices haven’t quite yet increased to levels needed to support appreciable offshore activity growth,” the update continue.