Energy companies anticipate an increase in their production

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Energy companies in the Federal Reserve’s 10th District, which encompasses Oklahoma, Kansas, Colorado, Nebraska and Wyoming, as well as the western third of Missouri and the northern half of New Mexico, forecast an average increase of oil and natural gas production by 7.5% this year, reports the Federal Reserve Bank of Kansas City.
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Energy companies in Oklahoma and several states in the region forecast an average increase in oil and gas production of 7.5% by the fourth quarter of 2022.

The Federal Reserve Bank of Kansas City, citing the results of its first-quarter energy survey, reported on Friday that producers were looking to increase production despite restrictions on growth, including ongoing labor issues. , supply chain issues and investor pressures to maintain capital discipline.

Uncertainty about future oil and gas prices in global markets was also cited by companies as a reason for caution.

“The global price of oil is currently in turmoil due to Russia’s war on Ukraine, negotiations with Iran, and other breakdowns and factors such as the resurgence of COVID in China,” the Fed report said. quoting a producer. “We expect higher prices until some clarity is achieved on many of these issues. Expect high volatility to continue.

In the survey, energy companies were asked about the oil and natural gas prices needed to make drilling profitable in the fields in which they are active. The average oil price quoted was $62 per barrel, while the average natural gas price quoted was $3.72 per million BTU. Asked about prices needed to sustain substantial increases in drilling, the average oil price quoted was $86 a barrel. However, in various areas, producers offered responses ranging from $45 to $150 per barrel.

The average natural gas price cited as needed to support substantial increases in drilling was $4.53 per million BTUs, with responses ranging from $3 to $6.50.

Notably, prices quoted to maintain profitability and support substantial increases in drilling were the highest in survey history, since 2014.

Companies were also asked what they expect oil and natural gas prices to be in six months, one year, two years and five years. They responded that they had record expectations for West Texas Intermediate crude, at $96, $89, $83 and $84 per barrel during those periods.

On the other hand, producers expected lower natural gas prices. The forecast average for Henry Hub natural gas was $4.45 six months from now, $4.32 per year from now, and $4.29 and $4.74 for two years and five years from now. .

The Federal Reserve Bank of Kansas City serves the 10th Federal Reserve District, encompassing the western third of Missouri; all of Kansas, Colorado, Nebraska, Oklahoma and Wyoming; and the northern half of New Mexico.

Other selected producer quotes included in a report on survey results included:

• “(During the pandemic) fracking technology keeps getting more efficient. … We begin to drill and complete our second tier locations, with some trepidation. I don’t believe we’ll see the big year-over-year percentage increase that has happened over the past decade.

• “(During the pandemic), rising drilling and completion costs are forcing operators to reassess this cost to justify drilling. Smaller independents are struggling to attract new investors.

• “(The Russia/Ukraine conflict) has reduced our willingness to hedge due to the increased risk of large price spikes.”

•”We have historically not hedged but recent events (Russia/Ukraine conflict) have led us to make an assessment.”

• “The most important factor is global demand and the ability of the United States to continue to expand its liquefaction capabilities. If progress is made on this front, higher prices could be in order (for natural gas). »

• “Prolonged years of low crude oil prices have killed drilling activity.”

According to Chad Wilkerson, Oklahoma City branch manager and economist at the Federal Reserve Bank of Kansas City, the survey found that energy activity in the 10th District has increased moderately and expectations for future activity remain strong. .

“District drilling and commercial activity increased further at the start of 2022,” he said. “Companies have reported higher prices needed to dramatically increase oil and natural gas drilling. Companies ranked labor shortages and pressure from investors to maintain capital discipline as the main factors limiting growth. However, expectations for future production remained positive.

About 52% of companies reported slight increases in U.S. well productivity during the pandemic, while nearly 30% reported slight or significant declines and about 18% of companies reported no change . Going forward, 14% of companies expected a significant increase in productivity and 48% expected a slight increase. 24% expected no change and 14% expected a slight drop in productivity in 2022.

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