Kunal Patel, senior business economist, Federal Reserve Bank of Dallas, joins Jason Spiess to dissect their 4th Quarter Survey of 134 energy firms, 90 were exploration and production firms and 44 were oilfield services firms.
The oil and gas sector continued growing in fourth quarter 2021, according to oil and gas executives responding to the Dallas Fed Energy Survey. The business activity index—the survey’s broadest measure of conditions facing Eleventh District energy firms—remained elevated at 42.6, essentially unchanged from its third-quarter reading.
Oil production increased at a faster pace, according to executives at exploration and production (E&P) firms. The oil production index moved up from 10.7 in the third quarter to 19.1 in the fourth quarter. Similarly, the natural gas production index advanced seven points to 26.1.
Costs rose sharply for a third straight quarter. Among oilfield services firms, the index for input costs increased from 60.8 to 69.8—a record high and suggestive of significant cost pressures. Only one of the 44 responding oilfield services firms reported lower input costs this quarter. Among E&P firms, the index for finding and development costs advanced from 33.0 in the third quarter to 44.9 in the fourth. Additionally, the index for lease operating expenses also increased, from 29.4 to 42.0. Both of these indexes reached their highest readings in the survey’s five-year history.
Oilfield services firms reported improvement across all indicators, although the pace of growth for some indicators has slowed. The equipment utilization index edged up from 47.8 in the third quarter to 51.1 in the fourth. The operating margin index remained positive but declined from 21.8 to 11.6. The index of prices received for services also remained positive but fell from 42.2 to 30.3.
Labor market indicators showed further growth in the fourth quarter. The aggregate employment index posted a fourth consecutive positive reading, though it edged down from 14.0 to 11.9. Employment growth continued to be driven primarily by oilfield services firms; the employment index was 22.7 for services firms versus 6.7 for E&P firms. The aggregate employee hours index was largely unchanged at 18.0. The aggregate wages and benefits index moved higher, from 30.3 to 36.6—a record high.
Six-month outlooks improved, with the index remaining positive but declining from 58.9 last quarter to 53.2 in the fourth quarter. The outlook uncertainty index fell to -1.5, with the near-zero reading indicating that uncertainty is relatively unchanged compared with the prior quarter.
On average, respondents expect a West Texas Intermediate (WTI) oil price of $75 per barrel by year-end 2022; responses ranged from $50 to $125 per barrel. Survey participants expect Henry Hub natural gas prices of $4.06 per million British thermal units (MMBtu) at year-end 2022. For reference, WTI spot prices averaged $71 per barrel during the survey collection period, and Henry Hub spot prices averaged $3.76 per MMBtu.
To see the 4th Quarter study, click here
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