Austin Skyline

Raymond James Energy Stat of the Week
by J. Marshall Adkins

Energy Stat: What Are U.S. Drilling Permits Telling Us About Future U.S. Rig Activity?
December 15, 2014

Since there hasn't been enough bad news for energy stocks lately, last week's headlines touting a 40% decline in new drilling permits issued in the U.S. provided just one more sensational reason to sell oil and gas stocks. While few now doubt that steep declines in U.S. drilling activity lie ahead, the magnitude of the drilling permit fall-off was disconcerting. After digging a little deeper into the permit data, it quickly became apparent that the 40% decline headline number was indeed very misleading. The chart that follows shows that, on average, U.S. drilling permits usually decline about 30% seasonally every week of Thanksgiving! In this week's Stat, we will discuss the usefulness of drilling permit data for predicting near-term U.S. rig count trends, additional considerations that need to be made when looking at November's drilling permit decline specifically, and drilling permits as an indicator of the magnitude of drilling activity movements in general.

This is a summary of a much more detailed commentary. Please contact your financial advisor for the full report.

There is no assurance any of the trends mentioned will continue in the future. Past performance is not indicative of future results. Investing involves risk and investors may incur a profit or a loss. Specific sector investing can be subject to different and greater risks than more diversified investments. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only form a small part of a diversified portfolio. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.

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