MIDLAND, Texas (ABC Big 2 / FOX 24)- As the oil economy continues to recover in the Permian Basin, the process of recovery is taking a different form according to Permian Basin Petroleum Association Chairman Kyle McGraw.
“We used to have the phrase of ‘drill baby drill’ , that’s all you want to do is just drill. And even one of the OPEC ministers is saying that may be a thing of the past.” McGraw says.
This, as the Baker Hughes rig count only showed 2 more rigs added to the basin last week. That number has been slowly increasing but that’s different than in previous recovery periods, especially considering the current price of oil. “When you’re in the upper 60’s with oil you would think the rig count would match what it had been prior, no it hasn’t.” McGraw says. “They’re not coming back as quick.”
As of May 28, the Permian Basin has 233 rigs up and running, Baker Hughes reports. That’s an increase of 150 rigs in the past year but since 2019 it’s a total decrease of 213 drilling rigs.
This shift is mainly driven by two factors according to McGraw. The first of which is a desire from boardrooms of large public producers to pay dividends. “Most of the investment community is saying hey before you go and chase production growth and add more rigs, send back some dividends to the shareholders.”
The second driver of this trend is an increasing effort to promote environmentally conscious production. Just last week, ExxonMobil announced that at least two of their board seats would be occupied by members of Engine No. 1, an activist group seeking environmental change. McGraw says the combination of these two factors are keeping the rig count lower than in previous recovery periods.
While the rig count remains low, oil prices have stabilized, much to the delight of West Texas producers like McGraw. “The feeling is, ‘hey, this boom bust cycle may be different than prior ones’ and many people will say ‘oh no it won’t, it’s gonna be the same.’ It looks like, by the evidence, the rig count is more measured and slower coming back.”
He says that he would like to see crude prices regulate. “It doesn’t need to go to a hundred dollars, let’s leave it right in here at something near 70 would be terrific.”
Prices for WTI closed Wednesday at $68.83 according to Bloomberg. Brent Crude closed at $70.25, the first time it has sold for more than $70 since May 2019.