Increased Oil Production In Q1 2022, Further Growth In 2023

• 52% report increased oil production in Q1 2022
• Majority see higher capex, further gains in 2023

A recent news article published in the Platts states that oil and gas activity index hits 6-year high in Q1 in bullish harbinger for growth.

Dallas Fed’s Eleventh District

Exploration and production firms operating in the Dallas Fed’s Eleventh District are reporting broad increases in business activity in first-quarter 2022, potentially signaling future growth in oil and gas production from the region’s major basins including the Permian, the Eagle Ford and the Haynesville.

In a survey report published March 23, improved sentiment among oil and gas executives led a quarter-on-quarter surge in the Dallas Fed’s business activity index to its highest level in the survey’s six-year history.

Among exploration and production firms exclusively, business activity was also up sharply in Q1 with reported increases in production, capital expenditures, employment and overall operating costs.

Increase in oil production

Nearly 52% of respondents reported an increase in oil production along with 47% reporting an increase in natural gas production during the quarter – less than 7% of survey respondents reported a decrease.

A majority of E&P executives noted an uptick in their firm’s capital expenditures in Q1. Notably, almost as many said that they expect a further increase capex in 2023.

Higher spending during the quarter was partly allocated to labor, with about 30% reporting increases in employment and employee hours while almost 70% reported no change. Cost inflation was another major factor contributing to the quarterly increase in spending with about 60% reporting increases in exploration and development costs and lease operating expenses. Among oilfield service firms, nearly 80% reported higher input costs in the first quarter.

Production

The overall increase in oil and gas business sentiment in Q1 mirrors activity in the field.

In the Permian Basin, the drilling rig count has grown to an estimated 330 as of mid-March – a 10% gain since late Q4 and its highest level in two years, according to data published by Enverus.

In the Eagle Ford and the Haynesville, operators have added about nine to 10 rigs each this quarter, equivalent in percentage terms to about 15% to 16% growth in both basins. In the Eagle Ford, the rig count has returned to pre-pandemic levels recently; in the Haynesville rig numbers are at their highest since 2012.

Across all three of the Eleventh District’s major shale basins, new well drilling and completion activity has also surged this quarter, according to data from the US Energy Information Administration – an increasingly bullish sign for future production growth in the region.

As US natural gas production continues to stumble, averaging just 93 Bcf/d this year, the Permian and the Haynesville now are among the most likely candidates to put US output back on a growth trajectory – especially given the acceleration in upstream activity across both basins this quarter. According to a recent forecast published by S&P Global Commodity Insights, Permian production could grow by close to 2 Bcf/d by year-end 2022, while the Hayneville could see production growth of 1.5 Bcf/d.

Outlook

While the Dallas Fed’s Energy Survey revealed a dramatically improved overall business outlook among oil and gas industry executives this quarter, uncertainty has also grown.

Oil and gas executives appeared most divided over the outlook for oil and gas prices. A plurality of respondents, about 30%, said that they see the WTI crude price ending the year at $80 to $89.99/b, while another quarter reported an anticipated price between $90 to $99.99/b. Nearly 30% of respondents reported price expectations ranging from $100 to over $120/b.

Executives were equally divided over the price outlook for US natural gas with surprising percentages of respondents reporting outlier price expectations below $4 and above $5.50/MMBtu.

An increase in business uncertainty

Across the industry, executives from oilfield service firms, E&P firms and oil and gas firms reported an increase in business uncertainty with the survey’s uncertainty index surging across the board. Published comments reported by survey respondents pointed regulatory concerns, supply shortages and cost inflation as chief among the factors for the quarterly increase in uncertainty.