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E&P | Natural Gas Prices | NGI All News Access | Oil
Natural gas and oil industry executives across Texas, northern Louisiana, and southern New Mexico expect a Henry Hub natural gas price of $7.55/MMBtu and a West Texas Intermediate (WTI) oil price of $108/bbl by the end of this year, according to the Federal Reserve Bank of Dallas.
The Dallas Fed, as it is known, obtained the price projections in its latest energy survey of exploration and production (E&P) and oilfield services (OFS) firms across the Federal Reserve’s three-state Eleventh District, which includes the oil-rich Permian Basin and the gassy Haynesville Shale.
During the June 8-16 survey of 85 E&P firms and 52 OFS companies, Henry Hub spot prices averaged $8.38 and WTI averaged $119.56.
[Want today’s Henry Hub, Houston Ship Channel and Chicago Citygate prices? Check out NGI’s daily natural gas price snapshot now . ]
Execs surveyed expressed concerns about an economic downturn and its effect on the oil and gas markets.
“The idea of general inflation, higher oil and gas prices and Federal Reserve rate hikes leading to a recession is being discussed among my peers,” one OFS executive commented. “This is tempering enthusiasm and increasing concern about a whipsaw crash in prices for oil and natural gas.”
A survey participant from an E&P company expressed hope for changing political winds in this fall’s federal elections to help offset the impact of high commodity prices on the broader economy.
“Our industry is praying for a shift in the mid-term elections so we can prevent the administration…from destroying our economy any further,” the respondent said. “I love high oil and natural gas prices, but they are really hurting the economy, and citizens are paying the price.”
Though acknowledging high prices make it “nice to have the capital to drill” after several years of low oil prices, an E & P executive feared “the price of oil could significantly decrease” with a recession looming and a potential end to the Russia-Ukraine war in the next few months.
“I do not want to get caught again making obligations based on high prices that I must fulfill when low prices come back,” the respondent said. “This is what nearly sunk me in 2015 and 2016, and I never want to experience that again.”
Also curbing Eleventh District oil and gas industry activity, which remained robust in 2Q2022, were ongoing challenges tied to escalating costs and worsening supply delays, researchers found.
“Supply-chain issues are materially impacting capital allocation decisions,” said an E&P executive. “Hyperinflation is influencing all lines provided in authorization-for-expenditure budgetary documents for new oil and gas wells.”
Another E&P industry respondent said that finding rigs, steel pipe and fuel to run the rigs “is getting increasingly hard.”
Dallas Fed senior business economist Kunal Patel said nearly all firms surveyed said “that supply chain issues are negatively affecting their operations, and most expect it will take more than a year to resolve these issues.”
Along with sand for hydraulic fracturing, Patel said respondents said “steel tubular goods and inadequate availability of personnel” ranked high among top key inputs currently in short supply to their firms.
Based on responses, researchers calculated a 57.7 business activity index for the Eleventh District, up quarter/quarter from 56.0 and the highest score in the survey’s six-year history.
The business activity index is the survey’s broadest measure of conditions that energy firms in the Fed’s Eleventh District face.
Patel told NGI the Dallas Fed defines the index to survey participants as their “firm’s business activity as measured by the key business indicator most relevant to” the firm.
The indicator “may be different from executive to executive but provides a general idea on whether activity is expanding or contracting…a positive index suggests expansion and a negative index suggests contraction,” he said.
Researchers observed continued growth in oil and gas production but at a slightly slower pace. E&P executives’ responses yielded an oil production index of 32.6 in 2Q2022, down quarter/quarter from 45.0. The gas production index dropped five points to 35.3.
Results showed the sixth straight increase in costs across the district. The input cost index for OFS firms surged to an unprecedented 88.0, up quarter/quarter to 77.0.
“None of the 52 responding oilfield services firms reported lower input costs,” said the researchers.
The E&P firms’ index for finding and development costs jumped to 70.6 in 2Q2022, compared to 56.0 in 1Q2022. The lease operating expense index also hit 74.1, up from 58.9.
“Both indexes reached highs for the survey’s six-year history,” researchers noted.
They also concluded that it is taking longer for firms to receive materials and equipment, with the supplier delivery index advancing to a record 31.9 from 30.6. Among OFS firms “the measure of lag time for deliveries jumped from 25.5 to 36.0…suggestive of delays acquiring products and/or services.”
OFS executives also reported improvements in equipment utilization (index from 50.0 to 66.7 quarter/quarter), operating margin (21.3 to 32.7), and prices received for services (from 53.2 to 62.7).
The survey also showed ongoing labor market indexes across the district, translating into strong growth in employment, hours and wages. The aggregate employment reading stayed positive for the sixth consecutive survey but dipped to 22.6 in 2Q2022 from 28.0 sequentially. The decline suggested a “slightly slowing rate of expansion in a very active job market,” researchers said.
“Hiring challenges continue, particularly in the more remote oilfield towns where labor left the region and industry permanently between 2015 and 2020,” said an OFS executive. “E&P companies are doing themselves and the industry a disservice when they react negatively, or punishingly, to necessary price increases from oilfield services companies.”
The survey also revealed decreases in the aggregate employee hours index (from 36.0 to 31.4 quarter/quarter) and the aggregate wages and benefits index (from 54.0 to 48.6).
Besides looking back at changes in executives’ perceptions from the first quarter, researchers also pegged the six-month outlook at a “highly elevated” 65.9 – down quarter/quarter from 76.3.
Moreover, respondents’ outlook uncertainty index stayed positive at 12.4 but was down quarter/quarter from 31.9. Researchers said the decline suggested “that while uncertainty continued to increase on net, fewer firms noted a rise this quarter than last quarter.”
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Related topics: Dallas Fed Federal Reserve Louisiana ofs Permian Basin Texas
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