US Oil & Gas Review

Oil and gas activity in the top-producing US shale basin was unchanged in the second quarter, while operators and oilfield services providers continued to report uncertainties regarding regulations and the near-term outlook amid lower oil and gas prices and growing challenges in access to capital as interest rates rise.

Texas and New Mexico Oil And Gas Activity Flat

Activity in the oil and gas sector in the Eleventh District—Texas, southern New Mexico, and northern Louisiana— was unchanged in the second quarter of 2023, the quarterly Dallas Fed Energy Survey showed at the end of June.

The business activity index—the survey’s broadest measure of conditions—edged down to zero in the second quarter from 2.1 in the first, according to oil and gas executives responding to the survey.

Oil and natural gas production increased at a slower pace compared with the prior quarter, executives at exploration and production (E&P) firms said.

Costs continued to rise, for a tenth quarter in a row, but cost increases continued to moderate. While the indexes remained above series averages, the rate of cost increases slowed. Among oilfield services firms, the input cost index remained positive but fell sharply to 41.2 from 61.6. Among E&P firms, the finding and development costs index plummeted to 14.9 from 46.8. Additionally, the lease operating expenses index declined to 26.0 from 37.6.

The company outlook index remained negative in the second quarter but moved up to -9.1 from -14.1 in the first quarter. The overall outlook uncertainty index plummeted by 26 points to 36.9, suggesting that while uncertainty continued to increase on net, fewer firms noted a rise this quarter than last quarter, according to the survey.

On average, respondents expect US crude oil and natural gas prices to be higher at year-end than they were in June.

Executives see the US oil benchmark, West Texas Intermediate (WTI), at $77 per barrel by year-end 2023, with responses ranging from $60 to $100 per barrel. For reference, WTI spot prices averaged $69.89 per barrel during the survey collection period.

Participants see a Henry Hub natural gas price of $2.97 per million British thermal units (MMBtu) at year-end. Henry Hub spot prices averaged $2.03 per MMBtu during the survey period.

Across all firms, 60 percent of executives expect drilling and completion costs per well to end the year higher than where they were at year-end 2022, while 28 percent expect them to be lower. Generally, larger firms expect lower costs, with 42 percent of executives at larger firms said they expect their firm’s drilling and completion costs per well to be slightly lower, with another 4 percent expecting costs will be significantly lower. On the other hand, smaller firms generally expect their drilling and completion costs at year-end 2023 to be higher than at year-end 2022.

Assessing the rising interest rates and tighter credit conditions this year, services firms and small E&P firms are more likely to expect significant impacts relative to large E&P firms. Twenty-four percent of support services companies expect a significant impact, compared with 22 percent from small E&P companies and 13 percent for large E&P companies.

“Natural gas prices are unsustainable, and if they stay at this level for the better part of 2023, it is going to do great damage to our ability to provide natural gas in the future. If we lose the low-producing wells, they aren’t coming back,” and E&P executive said in comments to the survey.

Another executive commented,

“Our country’s leadership for the last two years has created a lot of uncertainty in the energy sector. The crystal ball says that this same leadership over the next two years will maintain that uncertainty and it will grow exponentially.”

A third one added,

“Commodity pricing continues to soften, while operating costs have continued to increase and stay at elevated levels, which has led to a continued narrowing of profitability. Regulatory uncertainty remains an issue.”

Industry Hopes for Progress on Permitting Reform

The American Petroleum Institute (API) applauded the bipartisan debt limit bill Congress passed in early June.

“We applaud the Congress for passing the debt limit bill that includes important progress on permitting reform. Our current system for reviewing the infrastructure projects that fuel our economy and support our way of life did not become an endless gauntlet of bureaucratic hurdles overnight, and it will take more than one step to develop a workable process,” API President and CEO Mike Sommers said in a statement.

“This is a positive start, and we look forward to continuing to work with policymakers on both sides of the aisle to build on this progress.”

Upstream, Oilfield Services Employment Rises

Upstream oil and natural gas employment in Texas surged by 6,900 jobs in May, the highest single-month reported job growth in the 33 years of data available from the Texas Workforce Commission (TWC), the Texas Oil & Gas Association (TXOGA) said in June.

The job additions in May bring the total upstream oil and natural gas job count in Texas above 200,000 – at around 206,000 – for the first time in more than three years. Upstream in this statistics includes oil and gas extraction and support activities for mining, and excludes midstream and downstream sectors such as pipelines and refining.

Since the COVID-low point of September of 2020, the Texas upstream industry has added 49,000 jobs. May 2023 jobs were up by 22,700, or 12.4 percent higher compared to May of 2022. Months with an increase in upstream oil and natural gas employment have outnumbered months with a decrease by 28 to 4.

Oil and natural gas jobs pay among the highest wages in Texas with employers in oil and natural gas paying an average salary of approximately $115,000 in 2022, TXOGA says.

“Texas remains a powerhouse of production and all sectors of our economy benefit from robust activity,” Todd Staples, President of the Texas Oil & Gas Association, said, commenting on the employment figures.

“These numbers reported for May are the highest in decades and push upstream employment numbers above the 200,000 mark for the first time since 2020. Despite a slowdown in rig count and concerns about the global economy, the world remains dependent on the tremendous resources produced every day by dedicated men and women in the oil patch.”

Employment in the oilfield services and equipment sector across the United States rose by 4,385 jobs to 665,213 in May 2023—its highest level since March of 2020, according to preliminary data from the Bureau of Labor Statistics (BLS) and analysis by the Energy Workforce & Technology Council.

The OFS sector has added 35,937 jobs in the past 12 months and the increase in employment in May continues to bring the oilfield services and equipment industry closer to the pre-pandemic numbers of 706,528 jobs in February 2020.

“The oilfield services sector is thriving and welcoming new talent across numerous specialties,” said Energy Workforce & Technology Council CEO Leslie Beyer.

“For the past year, our sector has added almost 40,000 jobs, and it is still hiring.”

Read the latest issue of the OGV Energy magazine HERE