With oil prices holding fairly steady above $40 per barrel, producers are breathing a bit easier in the Permian Basin in southeastern New Mexico and West Texas.
Most producers have reopened the spigots on existing wells that they shut in last May after the pandemic cut oil demand and sliced prices to 20-year lows. Some operators are even drilling new wells, while others are taking the final steps needed to get oil flowing from ones they drilled before the pandemic hit but that they let sit idle until now.
Regeneration Energy Corp. President Raye Miller said his Artesia-based company fracked and completed a well this month for the first time since before the pandemic. The company drilled that well in 2019, but it didn’t do the hydraulic fracturing needed to crack open the shale rock where it’s located until now.
“We already spent the money to drill the well last year, so at this point, it made sense to complete it and get it producing,” Miller said.
Like most operators, Regeneration Energy shut in all the 60-plus wells it operates in the Permian last spring. But it steadily reopened them again as prices began to recover over the summer.
Prices need to climb above $50 per barrel and remain there for Regeneration to invest in drilling new wells, Miller said. But some larger producers with deeper pockets are slowly reinitiating drilling activities.
The state rig count, which plummeted from a high of 117 in mid-March to just 41 in September, has since climbed back to 58.
“Things are a bit rosier,” Miller said. “We’re not back to a robust economy, but hopefully we’ve seen the worst of it. The rig count is creeping back up, and local service companies have been quite busy in the last few weeks, so things seem a little brighter at this point in Southeast New Mexico.”
Continued recovery, however, depends on higher prices.
With the first COVID-19 vaccines rolling out – plus an ongoing agreement by the Organization of Petroleum Exporting Countries and allied nations to maintain collective production cuts – prices climbed to the mid-$40 range this month.
But with COVID-19 still raging and oil demand still well below 2019 levels, industry activity will likely remain sluggish well into 2021, said Rep. Larry Scott, R-Hobbs, a longtime oilman and owner of Lynx Petroleum.
“The situation on the ground hasn’t changed – it’s steady now, but there’s a lot of idle equipment still sitting around,” Scott said. “Rigs have recovered a bit, but it’s nowhere near the activity we saw before COVID.”