US Oil & Gas Review

Oil and gas activity in the Permian basin remained unchanged in the fourth quarter while most companies in the biggest US oil-producing basin expect little change in their capital spending for 2024 compared to 2023, the latest Dallas Fed Energy Survey showed.  

The US Administration received high bids in the US Gulf of Mexico lease sale in December 2023, in what could be the last oil and gas lease sale until 2025.

US oil and gas industry associations continue to reiterate the importance of homegrown crude oil and natural gas resources in ensuring energy security and reducing imports from countries with higher oil and gas operational emissions.

Oil and Gas Activity Remains Unchanged

Activity in the oil and gas sector in Texas, southern New Mexico, and northern Louisiana remained essentially unchanged in the fourth quarter 2023, according to oil and gas executives responding to the Dallas Fed Energy Survey for Q4 in December.

The business activity index, the survey’s broadest measure of conditions energy firms in these regions face, remained positive but slipped from 10.9 in the third quarter to 3.6 in the fourth quarter. The business activity index was 7.5 for E&P firms versus -4.2 for services firms, suggesting activity slightly grew for E&P firms, but declined slightly for service firms.

Oil production increased but at a significantly slower pace compared with the prior quarter, according to executives at E&P firms. The oil production index remained positive but fell from 26.5 in the third quarter to 5.3 in the fourth. Meanwhile, the natural gas production index increased from 15.4 to 17.9, according to the survey.

Uncertainty increased as the company outlook index turned negative in the fourth quarter and plunged by 48 points to -12.4, suggesting some pessimism among firms. The company outlook for E&P firms changed more drastically, as the company outlook index for these firms fell sharply from 46.8 to -9.0. The overall outlook uncertainty index jumped 39 points to 46.1.
On average, respondents expect a West Texas Intermediate (WTI) oil price of $78 per barrel at year-end 2024, with responses ranging from $51 to $110 per barrel.

Most companies in Texas, New Mexico, and Louisiana expect to increase slightly or keep capital spending flat in 2024 compared to 2023, the survey showed.  

In addition, oil and gas company executives expect the consolidation drive in the industry to continue in 2024, after the two large acquisitions valued at over $50 billion that Exxon and Chevron announced at the end of 2023. Of the executives responding to a question in the survey, 77 percent said they expect more acquisitions of $50 billion or more to occur in the next two years.  

In terms of the primary goal for companies this year, the most-selected response among large firms was “acquire assets”, picked by 35 percent of respondents, followed by “reduce debt” for 20 percent of respondents. At the same time, the most-selected response among small firms was “grow production” – 41 percent of respondents, followed by “maintain production” for 25 percent of respondents.

In comments to the survey, one E&P executive said “We are still worried about the current political climate and turmoil in the Middle East.”

An executive at a services firm noted that “The consolidation of operators will impede the growth and sustainability of the oilfield service sector.”

“This will lead to the demise of small independent oil and gas operators, as they will be unable to obtain reasonable pricing from the few remaining service providers,” the executive added.

Federal Oil and Gas Leasing Plans and Auctions

In the middle of December, the Department of the Interior published the final 2024–2029 National Outer Continental Shelf Oil and Gas Leasing Program, which envisages the fewest oil and gas lease sales in history.  

Under the Inflation Reduction Act (IRA), the Bureau of Ocean Energy Management (BOEM) cannot issue a lease for offshore wind development unless the agency has offered at least 60 million acres for offshore oil and gas leasing in the previous year.  

The Program schedules three oil and gas lease sales in the Gulf of Mexico Program Area in 2025, 2027, and 2029. These three lease sales are the minimum number that will enable the Interior Department’s offshore wind energy program to continue issuing leases in a way that will ensure continued progress towards the Administration’s goal of 30 gigawatts of offshore wind by 2030, the Interior said.
    
Under the plan, 2024 will be the first year since 1966 without an offshore oil and gas lease sale.

Commenting on the final five-year offshore oil and gas lease sale plan, Holly Hopkins, Vice President of Upstream Policy at the American Petroleum Institute (API) said that “Simply put, this final 5-year program fails to meet the energy needs of the American people and could threaten to increase reliance on foreign energy sources.”

“Demand for affordable, reliable energy is only growing, yet the administration is choosing to limit future production in a region that plays a critical role in powering our nation and supplies among the lowest carbon-intensive barrels in the world,” Hopkins added.

“This program is a step in the wrong direction for U.S. energy security and will only make it harder to meet growing energy demand over the long-term.”

A few days after the 2024-2029 lease sale plan was published, the Bureau of Ocean Energy Management (BOEM) held at the end of December the Gulf of Mexico Oil and Gas Lease Sale 261, as required by the IRA.

The lease sale offered 13,482 unleased blocks on 72.7 million acres in the Gulf’s Western, Central and Eastern Planning Areas.  

The sale generated $382,168,507 in high bids for 311 tracts covering 1.7 million acres in federal waters of the Gulf of Mexico. A total of 26 companies participated in the lease sale, submitting 352 bids totalling $441,896,332, BOEM said.

Pursuant to a ruling from the United States Court of Appeals for the Fifth Circuit, BOEM included lease blocks that were previously excluded due to potential impacts to the Rice’s whale population from oil and gas activities in the Gulf of Mexico.  

API’sHopkins commented that the lease sale generated the highest bid amount in nearly a decade, “demonstrating that our industry is working to meet growing demand and investing in the nation’s long-term energy security.”

“Although today’s congressionally mandated lease sale is a positive step after multiple delays, the lack of any offshore sales in the year ahead is a prime example of the administration’s failure to implement a long-term energy strategy,” Hopkins noted.

“We urge the administration to reconsider its shortsighted approach and plan today for tomorrow’s energy demand.”   

According to Tim Tarpley, president of the Energy Workforce and Technology Council, “This large bid total is important in that it opens the way for further growth in the Gulf, and puts some pressure on this Administration to stop slow-walking additional sales.”

“This could be especially important should the Administration flip in the 2024 elections, as we can expect increased calls for additional sales beyond the limited number that the Biden Administration has scheduled,” Tarpley said.

MfonUsoro, Principal Analyst at Wood Mackenzie, commented on the lease sale, “The increase in high bid amount reflected a pull forward in the demand by companies looking to secure prime, deepwater acreage. This was the last chance for companies to bolster regional portfolios outside of farm-in deals and swaps until the next sale in 2025 and, unsurprisingly, companies took advantage.”

Bidding activity shifted to deepwater blocks, which accounted for 83 percent of the blocks attracting bids compared to 66 percent in the previous lease sale, Usoro noted.

“Fewer lease sales going forward will mean US Gulf of Mexico companies will need to re-think leasing strategies. Companies will need to be more flexible with exploration budgets to add material acreage in each sale and the selection of blocks will need to be more astute,” the analyst said.

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