Lower 48 oil and natural gas permitting activity has picked up since the beginning of the year, climbing by 9% through February from a year ago, according to Evercore ISI.

Drilling

There were 188 more permits issued in February month/month (m/m). However, permitting was still down by half from February 2019, on the cusp of the Covid-19 pandemic.

Drilling permits issued in January and February combined were up 50% from the first two months of 2021, analysts said. 

“While permitting may inflect significantly higher near-term, recent declarations from President Biden suggest the government is reluctant to expedite this process, even in light of current geopolitical uncertainty,” Evercore analysts noted.

Evercore uses state and federal data to compile its monthly permitting report. Permits usually are obtained a few months before drilling begins. 

February permits eclipsed year-ago levels by more than 24% and were 15% higher than in February 2020, according to analysts. However, last month’s permitting levels were 44% below February 2019.

 

Uptick In Colorado, South Texas

More permits to drill were sought in the Denver-Julesburg (DJ) Basin/Niobrara formation of  Colorado during February, rising by 228 m/m, or 472% higher than in January. Eagle Ford Shale permitting in South Texas increased by 91 last month, a 40% gain from January.

The gains in the DJ and Eagle Ford helped to offset permitting losses in the Powder River Basin, which saw 147 fewer requests than in January, or down by 46% m/m, the data indicated.

“Milder decreases” were also reported across the Haynesville Shale, down 33 permits m/m in February, or 24% lower. The Barnett Shale’s permit requests fell by 24 from January, down 31%. Permitting in the Marcellus Shale also was down by 20 from January, 18% lower m/m. 

However, the declines in those basins “were offset by strong permitting activity in smaller basins,” according to Evercore. Permitting rose by 85 overall, or 63% from January, analysts said.

As it has for several years now, the Permian Basin was the region with the most permits issued in February at 37%, according to Evercore. The Eagle Ford constituted 13% of the permitting activity while the DJ was at 12%.

“Robust activity” in Colorado overall, which includes the DJ/Niobrara, rose by 264 permits in February, or 1,553% higher than in January. That covered for a “rough month in Wyoming,” where Evercore reported permitting down by 165 m/m or off 45%. 

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Last month “was Colorado’s highest permit count since May 2019, when the state passed a bill to reform the local oil and gas commission and enact stronger regulations,” analysts noted.

“Wyoming, on the other hand, reported a significant 631 m/m increase in permitting activity in July 2021, which steadily collapsed as February represented an eight-month low.”

Meanwhile, permitting levels rose m/m in California by 54%, or 50, and Texas recorded a 4% m/m increase, or 41 more permits than in January. 

‘Badly Broken’ Supply Chain

The gains were partially offset by permit declines in West Virginia, off 71% m/m, or down by 29, and New Mexico, with a 12% decline or 16 fewer permits m/m. 

Permitting in the Bakken Shale of North Dakota fell by 14% m/m, to 31 in February from 36 in January, according to Evercore. 

North Dakota producers are facing multiple roadblocks to increasing output amid a historically tight global oil market, the state’s top regulator said earlier this month. 

North Dakota Department of Mineral Resources director Lynn Helms in his monthly press briefing said, “I would say the No. 1 reason that it will take so long to ramp up U.S. production is going to be workforce.

“The supply chain is badly broken. The workforce isn’t there.” Labor shortages and a shortfall in critical materials such as fracturing sand, are preventing a rapid supply response as storage and drilled but uncompleted well inventories continue to draw down, he said.

The No. 2 cause, Helms said, is that “people are really unwilling to take the risk of massive investment at this point in an industry” that climate hawks say must wind down substantially by 2050.

In their note, Evercore analysts said the U.S. Bureau of Labor Statistics reported a monthly increase in jobs during February in mining support activity, a proxy for oilfield services, and natural gas extraction. 

“Mining support employment increased 2.5% last month and now represents a 20.7% increase on a year/year basis,” said Evercore analysts. “Similarly, oil and gas extraction,” i.e. exploration and production, “employment increased 1.9% in February and is up 13.5% on a year/year basis.”