OREANDA-NEWS. Oil and gas producers in Texas are seeking hundreds of drilling permits in anticipation of a further recovery in oil prices.

Companies have applied for more than 2,300 drilling permits in the state since 1 January, according to data from the Texas Railroad Commission which regulates the oil and gas industry. That's about 35pc lower than in the same period in 2015, when crude prices averaged $48.57/bl, but still a robust amount considering the sharp drop in oil prices and massive spending cuts planned throughout the industry. Nymex WTI closed at $36.79/bl today.

The permit requests could signal that operators are taking advantage of low-cost drilling to build an inventory ahead of an eventual recovery, said Teri Viswanath, an analyst with PIRA Energy Group. Drilling previously accounted for 60-80pc of a well's cost, but with the spread of horizontal drilling and hydraulic fracturing, drilling now accounts for between 27-38pc of total costs, according to an IHS study commissioned by the US Energy Information Administration (EIA).

The drilling permits are valid for two years from the date of approval, Texas officials said.

Pioneer Natural Resources, one of the most active independent exploration companies in Texas, has applied for 117 drilling permits since 1 January, most in the Midland basin in west Texas. Pioneer applied for permits in several Midland basin-area counties including Midland, Martin, Glasscock, Upton, Andrews and Reagan. Pioneer also applied for permits in two south Texas counties — Karnes and DeWitt.

Pioneer would not comment on whether the recent uptick in prices is already spurring drilling. The company has said previously that it will add drilling rigs when prices for 2017 recover to $40-$50/bl, highlighting how economic some core shale acreages have become.

An outlier among US independents, Pioneer added drilling rigs in the second part of 2015 even as its peers made dramatic cuts in drilling activity. Its acreage position in the low-cost Permian basin and solid hedges helped shield it from the sharp fall in crude prices. But the company is planning to cut its overall number of active rigs in the Permian by 50pc to 12 by mid-2016.

Marathon Oil has applied for 50 Texas drilling permits this year, the majority in Karnes county which is in the Eagle Ford shale region. The company is currently drilling and completing wells in the Eagle Ford.

Marathon would not give details on how many wells it has started this year, saying that it will update those figures in its first quarter earnings release in May. The company plans to spend $600mn in the Eagle Ford in 2016, of which $520mn is for drilling and completions. Marathon expects to bring 124-132 gross wells on line in the Eagle Ford with an average of five rigs in 2016. This compares to an average of 11 rigs in 2015 with 276 gross wells.

Other companies that have requested permits in Texas this year include ExxonMobil subsidiary XTO Energy, which has applied for 128; Hilcorp Energy which has requested 84; and Apache, which has applied for 75 drilling permits.

EOG Resources has applied for 70 permits, while Parsley Energy has asked for 69 and Encana 54.

The EIA reported yesterday that oil production moved lower in January in most states, with Texas as an exception, with output up by 0.7pc to 3.37mn b/d.

The US rig count has dropped sharply amid the low prices, down by 14 to 450 this week, according to Baker Hughes, while the Texas rig count fell by 5 to 204, down by 55pc from a year earlier.

Any sustained WTI rally above $45/bl would cause US shale producers to increase drilling and, after a time lag, production, analysts at SG Commodities said this week. WTI crude prices increased by nearly 14pc in March, but are still hovering below $40/bl. The year's lowest settle was $26.21/bl on 11 February.