High prices aren't making Permian Basin oil producers want to drill

Oil prices are high. And yet, oil producers in the Permian Basin — the pumping heart of the U.S. oil industry — aren't doing a whole lot about it.

According to a new survey fielded by the Dallas Federal Reserve in mid-March, just 21% of oil executives in Texas and the surrounding states said they're planning to significantly increase the number of wells they plan to drill this year. Half of them said they're not planning to build more wells at all. And another 26% said they plan to increase drilling only “slightly.”

Usually, rising oil prices have a predictable impact on oil producers.

“To incentivize a greater level of supply. That’s econ 101 right there,” said Karr Ingham, president of the Texas Alliance of Energy Producers.

But Ingham said drillers in the Permian Basin don’t seem to be ramping up production right now. One reason is simply that they haven't had enough time. The war has been going on for just over a month.

“It's just virtually impossible to have any kind of meaningful increase in production or supply in that period of time. The system just doesn't work that way. There's not a spigot, there's not a valve,” he said.

Instead, there’s identifying prospects and lining up permits, said Mark Finley, a fellow of energy and global oil at Rice University.

“Then they have to go out and line up a rig and a crew,” he said.

That’s all before they even start drilling. Finley said with past oil price swings, production takes a while to start.

“Typically we see the rig count begin to react within a few months, and then we begin to see production react another couple of months after that,” he said.

Finley said it’s not clear if the Middle East oil supply will be restricted for long enough to justify that investment.

Garrett Golding, assistant vice president for energy programs at the Dallas Fed, said domestic producers have gotten more disciplined in reacting to market swings.

“10 years ago, 15 years ago, they were more prone to chase higher prices with more activity. And we have a large graveyard of bankruptcies that are the result of that,” he said.

Golding said some small producers are considering boosting rig count. But the biggest producers, with the most ability to impact oil prices, haven’t yet.

“(They) aren't quite as nimble and are going to take a little more time,” he said.

Even if producers do choose to increase drilling, Golding said it would be just a few hundred thousand barrels a day extra.

“When this is a 5 million barrel a day disruption at a minimum,” he said.

And likely much more. So Golding said the solution to high oil prices probably isn’t coming from the Permian Basin.