Texas drilling permits plunge 69%

Source: By EnergyNow Media • Posted: Thursday, July 9, 2020

The biggest oil-producing state in the country issued less than a third as many oil and gas drilling permits last month as it did in June 2019, another sign of the COVID-19 pandemic’s impacts on the energy industry.

The Railroad Commission of Texas — which regulates oil producers — approved 312 new drilling permits for oil and gas wells across the state last month, compared with 1,001 in June 2019, the state agency said Monday.

Lockdowns and stay-at-home orders in many states have reduced oil consumption, causing permitting to slow down, said Railroad Commission spokesman Andrew Keese.

“There’s been a drop in drilling permits as business and travel slowdowns during the COVID-19 pandemic took hold along with the oil price drop that occurred due to increased oil supply,” Keese said in an email.

In January, the commission gave out 1,133 drilling permits compared with 1,199 the previous January. By March, the number of permits was down to 744 compared with 1,137 the year before. In May, just 251 permits were awarded, less than a quarter of the prior year’s levels.

Steve Hendrickson, president of Ralph E. Davis Associates at the Texas-based energy advisory firm Opportune LLP, said the sharp reduction in new oil and gas wells in Texas is unsurprising. Many U.S. oil producers have cut back on production since the pandemic began, Hendrickson said.

“It’s completely expected,” he said.

Some analysts doubt whether global oil demand and production will ever fully recover from the pandemic. One in 6 oil executives said they do not expect oil drilling to return to pre-pandemic levels this year, a survey from the Federal Reserve Bank of Dallas found last month .

Oil prices have recovered somewhat since April, when they fell to nearly $20 per barrel. Benchmark U.S. crude settled at $40.90 a barrel yesterday.

Nonetheless, in the coming months, oil prices, production and demand will depend in part on the number of COVID-19 cases in the United States, according to Rystad Energy. New infections have been rising since mid-June, increasing the possibility of additional lockdowns that could cause oil demand and prices to fall further, said Rystad oil markets analyst Louise Dickson.

“The critical situation in the country, and other nations, is what keeps prices below 45 dollars in the first place,” Dickson said in a statement.

While Hendrickson doubts that the rates of oil and gas drilling will remain as low as they are now for many years, he said it is unlikely that oil production or demand will experience “robust growth” prior to the development and deployment of a COVID-19 vaccine.

“We all could hope for a breakthrough, but until that occurs, I think we’re going to be stuck in this sort of situation,” Hendrickson said.