Tracking Permits to Monitor Drilling Activity in Texas, New Mexico, and North Dakota
Drilling permits are commonly viewed as a leading indicator of future drilling activity, but it's important to recognize that not every permit results in an actual well being drilled. This brings up a crucial question: How reliable are drilling permits as a metric for predicting drilling activity? Moreover, how should we interpret their value across different states, each with their unique permitting processes and regulatory conditions?
To address these questions, we utilized TGS Well Data Analytics to examine the follow-through rate of operators on their drilling permits. Our analysis revealed a significant trend: if a permit isn't acted upon within the first six months, the likelihood of it leading to a drilled and completed well diminishes considerably, particularly in certain regions. This finding suggests that, while drilling permits can be a valuable indicator, their predictive power varies based on the timing of the drilling activity and the specific conditions of the area in question.
Understanding these nuances is essential for accurately forecasting drilling activity and making informed decisions in the industry. For this analysis, we focused on permits filed in Texas, New Mexico, and North Dakota between 2020 and 2021 (Figure 1). While there are many factors that could influence permitting activity across states, one of the primary factors is permit expiration limits.
Figure 1. Permit activity across Texas, New Mexico, and North Dakota in 2020 and 2021.
Figure 2. Permit expiration limits across primary oil and gas producing states.
Figure 2 shows that Texas and New Mexico have the longest permit expiration limit of 24 months after approval, while North Dakota's limit is 12 months. As shown in Figure 3, 32% of permits in Texas are acted upon within the first two months, followed by a significant decline in activity. In New Mexico, drilling activity is more evenly distributed over the 24-month period, though the majority of permits are acted on within the first 12 months. In North Dakota, there is a noticeable surge in drilling activity during months 10 and 11, with another spike occurring just before the permits expire.
Figure 3. Number of months between permit approval and well activity for wells permitted in 2020 and 2021.
Interestingly, in all states analyzed, between 1-3% of wells reach completion and production between 25 to 48 months after initial permitting, well beyond the standard expiration limits. Additionally, there are instances where wells report activity but remain incomplete or unproductive after 48 months. It’s possible that operators are initiating these wells to extend the life of the permitted locations based on local regulations until conditions become more economically favorable for completion. As of this writing, 73% of permits analyzed remain incomplete or unproductive in North Dakota, with New Mexico and Texas seeing 57% and 36% of their respective permits waiting for action or passing their expiration date.
By leveraging TGS Well Data Analytics, we can perform swift comparative analysis and evaluation of permit activities. For more information about TGS Well Data Analytics or to schedule a demo, contact us at WDPSales@tgs.com.