Thursday, December 25, 2014

Drilling Permits Cut In Half In Texas

Dallas Morning News:
Oil drilling activity in Texas is falling dramatically, as the steep decline in crude prices since the summer takes hold, state regulators reported Tuesday.
The Texas Railroad Commission issued 1,353 permits for oil drilling last month, 50 percent less than it did the previous month. And in the months ahead, that will likely translate to rigs being shut down and layoffs across oil fields in West and South Texas.
“There’s more to come in the months ahead,” said Pavel Molchanov, an energy analyst with Raymond James. “This isn’t pleasant, but this is how the market rebalances itself.”
For now drilling rig counts are holding relatively steady, as companies wind down their contracts. Since peaking in October, the number of drilling rigs operating in the United States has declined by just 5 percent, according to the oil field service company Baker Hughes.
That number should continue a steady decline as companies make the decision to delay drilling on their leased land.
In recent weeks companies including Conoco Phillips and Marathon have both announced their drilling budgets for next year will be 20 percent less than 2014. For smaller companies, which fill out the bulk of the oil field, the reductions are even more dramatic.
Even so, oil production in Texas continues to grow, as existing wells flow and new wells come online. The Railroad Commission reported Texas produced 2.2 millions barrels a day in October, a modest increase from the previous month.
Production will quickly decline if that trend lasts very long.  That would also make it appear that the Saudis will be able to make the shale drillers the swing producers, and keep their own market share up, as they stated was their intention.  We'll quickly find out how solid all that junk debt the drillers piled up the last few years really is.

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