Oil and gas activity in three key energy producing U.S. states has been risingwith the latest jump in energy prices, according to a survey released on Wednesday, signaling a turn in producers’ sentiment even as their costs have risen too.
The survey showed new optimism in the oil patch after a series of dour quarterly reports and rising costs for oilfield services.
Exploration is driving the increase, with the survey’s index of business activity reaching 10.9 in the third quarter, from zero in the second, the Federal Reserve Bank of Dallas said.
The results of a mid-September poll of executives with 147 energy firms in Texas, Louisiana and New Mexico found that cost inflation remains a factor but rising oil prices may finally be encouraging more drilling.
“Capital discipline will be tested among operators if the price remains consistently over $90 per barrel,” one of the survey respondents told bank pollsters.
U.S. oil futures on Wednesday were trading up more than $3 to $93.74 a barrel, the highest since July 2022.
The bank’s index of oil and gas production activity climbed to 26.5 in the third quarter, from 8.0 in the second quarter. Its gas production index also rose to 15.4, from 2.1 the prior period.
More than half the executives surveyed said they expect oil consumption to be slightly to significantly higher in 2050 than it is today. Another third said they expect consumption to be slightly lower to significantly lower, and 15% expect consumption to remain the same.
NET ZERO CHALLENGES
Oil production is likely to increase due to global population growth despite efforts to get greenhouse gas emissions to net zero by 2050, said Kunal Patel, a senior business economist at the bank.
The poll, taken in mid-September at a time when U.S. oil futures were trading about $90 per barrel, had more than two-thirds of those polled projecting the year-end price of oil will be between $85 and $100 per barrel.
“We are very bullish on the price of oil. Shale production has flatlined, and OPEC is once again in the driver’s seat,” one executive told bank pollsters. “New field discoveries are not keeping up with the produced volumes. The lack of inexpensive energy in the future will curtail worldwide economic growth.”
Oilfield costs rose for the 11th consecutive quarter, firms reported, with the bank’s finding and development cost index up to 18.3 from 14.9. An oilfield service cost index slipped to 33.4 from 41.2.
SERVICE COSTS
“Lead times for major components from major manufacturers continue to increase year over year and compared with the past two quarters,” another executive said. “Medical insurance cost for 2024 is approximately a 10 percent year-over-year increase. Vehicle, property and casualty insurance rates for 2024 are also increasing more than 10 percent,” he added.
The expected increase in costs was more pronounced among smaller companies than larger exploration and production (E&P) companies because of larger companies are more able to pressure suppliers, said Patel.
The aggregate employment index declined to 5.5 in the third quarter from 13.1 in the second, but the single-digit reading indicates there was little change from the second quarter employment level, the bank said.
Source: Reuters (Reporting by Curtis Williams; Editing by David Gregorio)