Dallas Fed Energy Survey: Growth continued in oil and gas sector during the final quarter of 2021

State & Regional
Texas Oil, Oil Derrick, Pumpjack (Getty Images) - 1920

A pumpjack sits on the outskirts of town at dawn in the Permian Basin oil field in Midland, Texas. (Photo by Spencer Platt/Getty Images)

LUBBOCK, Texas (PRESS RELEASE) — The following is a press release from the Federal Reserve Bank of Dallas:

Oil and gas activity continued expanding in fourth quarter 2021, according to oil and gas executives responding to the Federal Reserve Bank of Dallas Energy Survey.

“The oil and gas sector saw continued, solid growth in business activity this quarter, accompanied by mounting cost pressures in several areas,” said Michael Plante, Dallas Fed senior research economist.

Additional key takeaways from this quarter’s survey:

  • The business activity index came in at 42.6, pointing to strong overall growth.
  • Both oil and natural gas production grew this quarter. The oil production index was 19.1, and the natural gas production index was 26.1
  • The input cost index reached another record high, 69.8, breaking last quarter’s record 60.8 reading. Only one of the 44 responding oilfield services firms reported lower input costs.
  • Among E&P firms, the index for finding and development costs and the index for lease operating expenses reached their highest readings in the survey’s history, pointing to substantial growth in those costs.
  • Wages and benefits continued rising amid further growth in employment.
  • On average, respondents expect a West Texas Intermediate (WTI) oil price of $75 per barrel by year-end 2022, and natural gas near $4 per million British thermal units (MMBtu).

Most firms expect to increase capital spending in 2022

In a series of special questions, firms were asked about capital spending in 2022, the oil price that firms are using for budgeting, whether countries will meet their commitments for reducing greenhouse gas emissions, upstream firms’ primary goals for the coming year, plans for reducing greenhouse emissions, and oil and gas support services firms’ expectations for how much selling prices and input prices will change next year.

“Most firms say they will increase capital spending next year, with 31 percent reporting a significant increase, and 44 percent reporting a slight increase. Only 8 percent of our respondents expect to decrease capital spending,” Plante said. 

Additional takeaways from the special questions:

  • A majority of firms are using an oil price at or above $60 for budgeting purposes. The average response across all firms was $64.
  • Forty-nine percent of exploration and production (E&P) companies said that growing production was their primary goal for 2022.
  • Almost two-thirds of large E&P companies reported having plans to reduce carbon and methane emissions. Larger firms, which make up a sizable amount of U.S. oil production, are much more likely to have these plans in place than smaller firms.
  • On average, support service firms expect the price of their primary service or product to increase by 8.5 percent in 2022 while input prices are expected to rise roughly 10 percent. Increasing demand for their service or product was cited as the main factor that will influence the change in their firm’s selling price.
  • Ninety-five percent of executives said they believe countries will be unable to meet their 2030 commitments for reducing greenhouse gas emissions.

The survey samples oil and gas companies headquartered in the Eleventh Federal Reserve District, which includes Texas, southern New Mexico and northern Louisiana. Many have national and global operations.

Data were collected Dec. 8–16, and 134 energy firms responded. Of the respondents, 90 were exploration and production firms, and 44 were oilfield services firms.

For more information, visit www.DallasFed.org.

(Press release from the Federal Reserve Bank of Dallas)

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