19 June 2016, Houston — U.S. drillers this week added oil rigs for a third week in a row for the first time since August, according to a closely followed report on Friday, as producers seek more drilling permits after crude prices hit an 11-month high over $51 a barrel last week.
Despite a decline in U.S. crude futures to one-month lows to under $47 this week, analysts and producers have said oil over $50 was a key level that would trigger a return to the well pad and drilling permits are a leading indicator of future drilling.
Drillers added nine oil rigs in the week to June 17, bringing the total rig count up to 337, compared with 631 a year ago, energy services firm Baker Hughes Inc said.
Before this week, drillers added rigs in only three out of 23 weeks this year, cutting on average nine oil rigs per week for a total of 208.
That compares with cuts of 18 rigs per week on average in 2015 for a total decline of 963, the biggest annual decline since at least 1988 amid the biggest rout in crude prices in a generation.
The rig count has declined since hitting a peak of 1,609 in October 2014. The slide came three months after U.S. crude futures began crumbling from a high of around $107 in July 2014 to reach a near 13-year low of about $26 in February this year.
Since the February price low, U.S. crude futures have almost recouped half their losses. On Friday, they were trading at around $47, or 3 percent lower on the week, amid anxiety over Britain’s possible exit from the European Union.
To figure out how many rigs U.S. producers will likely add, analysts said they look to drilling permits, which they forecast rising.
In most states, producers drill a land well about two months after the state issues a permit because the firm has already incurred significant expenses to secure the acreage and conduct geologic surveys, among other things, analysts at U.S. investment banking advisory Evercore ISI said this week.
“Land operators are restless after a year and a half of declining activity, and we expect the recent crude rally to bolster permit application totals heading into the warmer (and dryer) months,” Evercore said, noting the Permian and Eagle Ford will likely be the first-move shale plays for producers looking to put rigs back to work in 2017.
After falling to 1,807 permits in February, the lowest monthly level since at least 2006, Evercore forecast the number of land permits would rise to a year-to-date high around 2,119 in June from 2,033 in May.
That put total annual land permits on track this year to fall below 2015’s lows. Land permits peaked at 86,955 in 2008 and bottomed at 43,940 in 2015, according to Evercore data going back to 2006.
Pioneer Natural Resources Co said this week it expects to boost its 2016 capital budget by about $100 million to $2.1 billion as a result of rig additions.
*Scott DiSavino; Editing – Marguerita Choy – Reuters