The state that produces the most oil in the United States is Texas, as most would imagine. However, things are starting to change in the Lone Star State over the past couple of months. In November, they reported that there was a large drop off in the number of drilling permits they issued. In fact, the drop was massive but the decline did not come out of nowhere. With the drop in oil and gas prices over the course of the last few months, it was only a matter of time before more companies started to tighten their belts and reduce the scale of their operations slightly.
According to the state’s regulating body, the Texas Railroad Commission, the requested number of permits for new oil wells dropped by 57%, and the permit requests for new oil and gas wells dropped 46%. In November, the state issued 1,508 overall permits. The month before, they issued 3,046.
The price of oil at one point during December dipped to around $55 a barrel, but it went up by $2 when news emerged that the economic growth over the past year has been the fastest it’s been in more than a decade. This caused some to believe that the demand for crude would rise. However, that hasn’t happened yet. The price is still quite low, and that’s not encouraging many companies to invest more money into operations that may not make them the profit they need, at least currently.
The drop in the number of permits was something that the state anticipated, though. Dropping prices for oil and gas would naturally lead to fewer companies wanting spend resources on something that was not a guaranteed moneymaker. Instead, the oil and gas companies are focusing on the elements they already have in play and the ones that have the potential to give them the best return with the least amount of additional investment. Many of the relatively new wells producers have are performing well, so they feel that they can handle the changes in price, at least for the time being.
How long will the price drop last? This depends on a number of factors, and it becomes very difficult to speculate. If OPEC would reduce their output, or if there were an increase in demand for crude, the prices would rise. However, it is impossible to predict exactly where and when the prices will go back up. Producers need to wait and watch.
About Oil Works Inc.
Oil Works, Inc. is a complete drilling rig equipment manufacturer and service provider based in the Permian Basin for over 20 years. OWI’s product and service offerings include Derricks, Substructures, Drawworks, Mud Systems, Walking Systems, Power Generation, Control Systems, Iron Roughneck Repair and Upgrades and complete Rig Solutions built to API and ISO standards. OWI is also proud to offer 24/7 Service and Support.
