Horizontal Permitting Activity has increased post-invasion, but still lags behind pre-COVID levels

Oil and gas permits provide a fantastic leading indicator of production. Drilling Permits are needed to drill, complete, and produce a well, and operators file them when they are planning to conduct more activity in the future. So when we want to estimate where L48 production will go in the future, we look at permits as one important data point.

How are oil prices affecting drilling permits?

We have had two major price “moments” over the last few years: the COVID downturn (and price war) in March 2020, and the Ukraine war beginning on February 24, 2022. After Russia’s invasion, oil and gas permits became a bit of a political hot topic, as Americans dealt with skyrocketing prices at the pump.

At this point, we now have five complete months behind us since the invasion, plenty of time to understand the permitting response to high prices and pressure from the administration. (Quick note – permits can’t be applied for instantaneously; depending on the regulatory regime they may take weeks or months to prepare – not to mention approval delays after permit submission). So what’s it looking like?

Since February, permits have gone up to an average of 1307 per month, a 23% increase over pre-invasion levels. But this is still below the pre-COVID average of 1374 permits per month.

In the Permian (yellow in the above chart), permit levels are roughly back to where they were before COVID, even though in March of this year they set a new record of 840 drilling permits for new horizontal wells. But the Eagle Ford and the Bakken lag behind, as operators confront a lack of inventory, a trend that began before the downturn. Of the major plays, only the Haynesville is exceeding pre-COVID permitting levels.

What does this mean for the production outlook?

The period between permit approval and the start of drilling can vary significantly amongst operators within the same basin, and many permits are never drilled. But in aggregate, permitting levels do provide meaningful data about how much activity operators are planning.

With longer and longer laterals, each permit can produce more hydrocarbon. But this doesn’t seem like the explosion of activity you would need to make a meaningful increase in L48 production.

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Ted Cross

Ted Cross is Director of Product Management at Novi, where he builds powerful machine learning data and analytics products to solve the toughest problems in unconventional oil and gas. Prior to Novi, Ted was a Senior Geologist with ConocoPhillips.