Oil prices have plummeted 40% in the last six months, and that’s putting the kibosh on some new drilling across North American shale plays.
According to DrillingInfo.com, applications for new drilling permits in South Texas’ Eagle Ford Shale and North Dakota’s and Montana’s Bakken Shale fell approximately 30% in November of 2014 compared to the previous month. However, the Texas Railroad Commission reports a whopping 4,891 new drilling and re-enter permits in the Eagle Ford from Jan. – Oct. of this year, already surpassing the total for new drilling and re-enter permits in 2013 of 4,416.
The rig count in the Eagle Ford Shale has not dropped off yet, staying between roughly 260 – 270 rigs running across EagleFordShale.com’s 30-county coverage area per week since June of 2014. But on Friday, oilfield services giant Baker Hughes, which will soon be purchased by rival Halliburton, reported a sharp drop in the U.S. oil rig count, with a decrease of 29 rigs.
As prices fall, new drilling in some areas of the Eagle Ford will also fall, but as we’ve reported, the “sweet spot” areas of the play will continue humming with drilling rigs.
Where the pinch will be felt the most in the coming months is with oilfield services companies. At higher oil prices, service companies have benefitted from charging a premium for their services, but expect for many contracts to be renegotiated as operator’s look for ways to trim the fat, and focus more on efficiency.