US Oil & Gas Review

The company outlook about the future of the US oil and gas sector has improved despite little change in industry activity in the first quarter of the year, while breakeven prices have increased from a year ago, the latest Dallas Fed Energy Survey showed.

Elsewhere in the US oil and gas industry, natural gas producers are waiting out the currently low prices by building up inventory of ready-to-be-turned-in-line wells once prices rebound.

The industry has also made progress in reducing emissions while industry organisations are calling on Congress to overturn some proposed new rules the Biden Administration plans for the transportation and energy production sectors.

US Breakeven Prices Rise

The latest Dallas Fed Energy Surveyshowed at the end of March little change in oil and gas activity in the Eleventh District, which includes Texas, northern Louisiana, and southern New Mexico.

The business activity index, the survey’s broadest measure of conditions energy firms in the Eleventh District face, was 2.0 in the first quarter, suggesting little to no growth during the quarter, and was essentially unchanged from the previous quarter, according to oil and gas executives responding to the Dallas Fed Energy Survey.

Oil and gas production decreased, especially sharply for natural gas, while costs increased at a slightly faster pace for both oilfield services and E&P firms, the survey found.

The company outlook index rebounded in the first quarter, jumping by 24 points to 12.0. Yet, it is still below the series average. The overall outlook uncertainty index droppedby 22 points to 24.1, suggesting that while uncertainty continued to increase on net, fewer firms noted a rise in the most recent quarter.

On average, respondents expect a West Texas Intermediate (WTI) oil price of $80 per barrel at year-end 2024, with responses ranging from $70 to $120 per barrel. When asked about longer-term expectations, respondents on average expect a WTI oil price of $83 per barrel two years from now and $90 per barrel five years from now, the survey showed.

Survey participants expect a Henry Hub natural gas price of $2.59 per million British thermal units (MMBtu) at year-end, $3.18/MMBtu two years from now, and $3.94/MMBtu five years from now. WTI spot prices averaged $82.52 a barrel and Henry Hub spot prices averaged $1.44/MMBtuduring the survey collection period13–21March.

Executives stated in the latest survey that the average breakeven price for existing wells across the US is nowabout $39 per barrel, up from $37 a barrel last year. Across regions, the average price necessary to cover operating expenses ranges from $31 to $45 per barrel. Almost all respondents can cover operating expenses for existing wells at current prices, the survey found. The Delaware basin of the Permian has the lowest average breakeven at $31 per barrel, while the average breakeven for non-shale US oil production is $45 a barrel.

For the entire sample, companies need $64 per barrel on average to profitably drill a new well, higher than the $62-per-barrel price when this question was asked last year. Across regions, average breakeven prices to profitably drill range from $59 to $70 per barrel. Breakeven prices in the Permian Basin average $65 per barrel, up by $4 compared to last year. Almost all firms in the survey can profitably drill a new well at current prices.

Respondents also noted that the Environmental Protection Agency’s (EPA) guidance regarding the methane charge from the Inflation Reduction Act would have a net negative impact on their firm. The most-selected response among E&P firms was “slightly negative,” chosen by 46 percent of respondents. Another 34 percent selected “significantly negative,” while 19 percent selected “neutral,” and 1 percent expect a positive impact.

Commenting on the survey, an executive at one exploration and production (E&P) firm said that “Natural gas prices remain challenged, primarily due to the overhang of storage and lack of winter demand. Crude oil markets have continued to be constructive. We have decreased capital investments in our natural gas portfolio and increased capital investments in our oil portfolio.”

Natural Gas Producers Cut Output and Prepare for a Price Rebound

US natural gas producers have announced production reductions this spring in response to historically low prices, due to a milder winter, which led to lower gas demand for heating and power and to above-average levels of working gas in storage.

The low prices are setting up American producers for a more difficult 2024 than they had probably expected. Gas producers are using their operational flexibility in well drilling and completion, Enverussaid at the end of March. Companies are deferring production and well completions and are stocking up on wells ready to be turned in line when natural gas prices recover.

“While companies are certainly protective of cash flow, they all want to be ready to service the next wave of LNG projects coming online in 2025,” Enverus notes.

US Oil and Gas Sector Cuts Emissions

The oil and gas sector’s reported upstream and gathering emissions fell between 2020 and 2022, Enverus Intelligence Research (EIR) said in a report in March. Total emissions declined by 5 percent despite a 9-percent increase in production. This led to a 12-percent drop in emission intensity across the Lower 48.

“Operator performance varied, however, and we believe the next five years will prove critical for companies to address easier-to-abate emissions ahead of quickly changing regulations,” said Ivana Petrich, senior associate with EIR.

“Despite a 23% drop in reported methane emissions, we calculate that many plays would still, on average, be exposed to the Inflation Reduction Act’s waste emissions charge that came into effect on Jan. 1, based on 2022 emissions.”

Industry Opposes LatestBiden Administration Rules

The American Petroleum Institute (API) has joined with 19 associations representing all segments of the US oil and natural gas industry operating across the country in calling on the US Environmental Protection Agency to revise what API described as a“misguided methane fee” on American energy.

In comments submitted to the EPA on the “waste emissions charge” proposed rulemaking, the associations argued that the proposed rule creates an incoherent regulatory regime, fails to meet the statutory requirements outlined by the Inflation Reduction Act, and discourages emissions reduction efforts by the industry.

“This tax on American energy is a serious misstep that could jeopardize our nation’s energy advantage and weaken our energy security,” said API Senior Vice President of Policy, Economics and Regulatory Affairs Dustin Meyer.

“U.S. oil and natural gas is innovating throughout its operations to reduce methane emissions while meeting growing energy demand. Yet this proposal creates an incoherent, confusing regulatory regime that will only stifle technology advancements and hamper energy development,” Meyer added.

EPA issued at the end of March a final rule thatsets new, more protective standards to further reduce harmful air pollutant emissions from light-duty and medium-duty vehicles starting with model year 2027.

API and the American Fuel & Petrochemical Manufacturers (AFPM)said the final rule would eliminate most new petrol cars in less than a decade.

“At a time when millions of Americans are struggling with high costs and inflation, the Biden administration has finalized a regulation that will unequivocally eliminate most new gas cars and traditional hybrids from the U.S. market in less than a decade,” API President and CEO Mike Sommers and AFPM President and CEO Chet Thompson said in a joint statement.

“This regulation will make new gas-powered vehicles unavailable or prohibitively expensive for most Americans. For them, this wildly unpopular policy is going to feel and function like a ban.”

API and AFPM noted that currently, only EVs and five plug-in hybrid models meet the 82 grams/mile threshold in EPA’s rule. No petrol, diesel, or traditional hybrids come close, they noted, and said that if Congress doesn’t overturn the rule they are prepared to challenge it in court.  

According to an Ipsos poll, 75 percent of US registered voters oppose government policies that would ban new gasoline, diesel and traditional hybrid vehicles, including 80 percent of Independent voters and 56 percent of Democrats, API said.

Read the latest issue of the OGV Energy magazine HERE