Released January 02, 2020 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The business environment for Oil & Gas Producers in Texas and parts of New Mexico and Louisiana brightened somewhat in the fourth quarter, though conditions continued to deteriorate for oilfield services firms, according to Dallas Federal Reserve Bank's quarterly survey of the Oil & Gas industry in those three states.
The Dallas Fed conducts a quarterly survey of about 200 oil and gas firms located or headquartered in Texas, southern New Mexico and northern Louisiana, and which operate regionally, nationally or internationally. The latest survey, conducted December 11-19, received about 170 responses. Of the respondents, 111 were exploration and production (E&P) companies, and 59 were oilfield services firms. The survey results were released December 27.
The firms in this survey are either located in or operate in the Permian Basin, the Eagle Ford Shale and the Haynesville Shale, three of the nation's more prolific unconventional hydrocarbon formations. The Permian Basin is the largest oil-producing formation in the country, and the Permian and the Haynesville are the second- and third-largest gas-producing regions in the U.S.
In the survey, one E&P representative said, "The capital markets for oil and gas remain extremely difficult. The risk appetites of the banks for energy lending are much lower." Said an official from another upstream firm, "We are having to divest properties in order to keep from dropping employees." A third worried that the continued deterioration of condition for oilfield services firms may hurt the quality of work performed by those firms, and that "the viability of some oilfield services firms is a concern."
Turning to the oilfield services segment, an official at one firm said, "Access to capital for the oil and gas industry is the main driver of uncertainties for our business. The current trends in (E&P) demands on our equipment, particularly hydraulic fracturing equipment, versus the price those customers are willing to pay are unsustainable." Another oilfield services company representative said there was an oversupply of onshore equipment, which is lowering margins. A third commented: "The outlook for North American onshore seismic activity has worsened significantly; our customers are only interested in spending dollars when absolutely necessary and only when that investment will produce a return in the very short run."
These responses confirm, but with added granularity, what Industrial Info has recently reported about the difficulties facing the sector, including: November 18, 2019, article - Frac Sand Companies Crushed by Excess Supply, Declining Demand and Falling Price; November 14, 2019, article - Low Gas Prices Take Toll on Independent Producers' Profits, Capital Outlays; and September 4, 2019, article - As Oil & Gas Sector Consolidates, Will New Business Models Emerge?
This quarter's survey included new questions on capital expenditure (capex) plans for 2020, the price of oil needed to cover firms' planned capital spending for 2020 and the main cause of flaring in the Permian Basin. Among all responding firms, 41% said they expected to cut capital spending in 2020 either significantly or slightly. Less than one in 10 said they planned to boost capex next year, while 26% said they anticipated increasing it slightly. One-quarter said they saw no change from 2019.
Click on the image at right to see a graphic for planned capital spending in 2020 for firms headquartered or operating in Texas, southern New Mexico and northern Louisiana.
Broken out by segment, oilfield services firms were more likely than upstream firms to reduce capital spending next year, the Dallas Fed said: 49% of service firms responding to the survey said they expected to cut capital spending in 2020 compared to 36% of E&P officials who said that. But, on a brighter note, 24% of services firms expect to increase capex in 2020, and four in ten (40%) of E&P officials said they expected capex to grow in 2020.
Less than one in five (19%) of E&P firms said they could cover their planned capital outlays with cash from operations if West Texas Intermediate (WTI) crude oil was priced at between $50 and $54 per barrel. Four in ten (40%) said they needed prices above $55 to fund capex from operations, while a similar number (41%) said they could cover those outlays with cash from operations if WTI sold for less than $50 per barrel.
Click on the image at right to that range to see a chart of crude oil price points E&P companies needed to cover their capital spending with cash from operations.
Comparing business activity in the fourth quarter to the third quarter, upstream firms reported a 5.4-point improvement. Oil and gas production both grew on a quarter-over-quarter basis, and the outlook for capital spending in the current quarter and for 2020 both gained. There also was a significant decrease in uncertainties among the E&P respondents.
Conditions were far gloomier among the oilfield services respondents, who reported fourth-quarter declines in various key categories, including: level of business activity, utilization of equipment, capital spending, employment, employee hours worked, prices received for services and operating margins. Uncertainty rose sharply for this group while companies reported a weaker outlook for the quarter.
For the fourth quarter, the Dallas Fed reported overall business activity for E&P firms and oilfield service companies as -4.2, an improvement over the previous quarter's score of -7.4, which suggests the pace of contraction has lessened for firms in Texas, southern New Mexico and northern Louisiana.
Click on the image at right to see a graphic of the Dallas Fed's Oil & Gas business activity index.
During the Dallas Fed's eight-day survey period, when WTI prices averaged $60.19 per barrel and Henry Hub gas prices averaged $2.28 per million British thermal units (MMBtu), respondents were unenthusiastic in their predictions for prices for those commodities one year out. They said they expected WTI to average $58.54 per barrel at the end of 2020, and gas would sell for $2.51 per MMBtu by then.
Click on the images at right to see the respondents' predictions for WTI and natural gas prices at yearend 2020.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
The Dallas Fed conducts a quarterly survey of about 200 oil and gas firms located or headquartered in Texas, southern New Mexico and northern Louisiana, and which operate regionally, nationally or internationally. The latest survey, conducted December 11-19, received about 170 responses. Of the respondents, 111 were exploration and production (E&P) companies, and 59 were oilfield services firms. The survey results were released December 27.
The firms in this survey are either located in or operate in the Permian Basin, the Eagle Ford Shale and the Haynesville Shale, three of the nation's more prolific unconventional hydrocarbon formations. The Permian Basin is the largest oil-producing formation in the country, and the Permian and the Haynesville are the second- and third-largest gas-producing regions in the U.S.
In the survey, one E&P representative said, "The capital markets for oil and gas remain extremely difficult. The risk appetites of the banks for energy lending are much lower." Said an official from another upstream firm, "We are having to divest properties in order to keep from dropping employees." A third worried that the continued deterioration of condition for oilfield services firms may hurt the quality of work performed by those firms, and that "the viability of some oilfield services firms is a concern."
Turning to the oilfield services segment, an official at one firm said, "Access to capital for the oil and gas industry is the main driver of uncertainties for our business. The current trends in (E&P) demands on our equipment, particularly hydraulic fracturing equipment, versus the price those customers are willing to pay are unsustainable." Another oilfield services company representative said there was an oversupply of onshore equipment, which is lowering margins. A third commented: "The outlook for North American onshore seismic activity has worsened significantly; our customers are only interested in spending dollars when absolutely necessary and only when that investment will produce a return in the very short run."
These responses confirm, but with added granularity, what Industrial Info has recently reported about the difficulties facing the sector, including: November 18, 2019, article - Frac Sand Companies Crushed by Excess Supply, Declining Demand and Falling Price; November 14, 2019, article - Low Gas Prices Take Toll on Independent Producers' Profits, Capital Outlays; and September 4, 2019, article - As Oil & Gas Sector Consolidates, Will New Business Models Emerge?
This quarter's survey included new questions on capital expenditure (capex) plans for 2020, the price of oil needed to cover firms' planned capital spending for 2020 and the main cause of flaring in the Permian Basin. Among all responding firms, 41% said they expected to cut capital spending in 2020 either significantly or slightly. Less than one in 10 said they planned to boost capex next year, while 26% said they anticipated increasing it slightly. One-quarter said they saw no change from 2019.
Click on the image at right to see a graphic for planned capital spending in 2020 for firms headquartered or operating in Texas, southern New Mexico and northern Louisiana.Broken out by segment, oilfield services firms were more likely than upstream firms to reduce capital spending next year, the Dallas Fed said: 49% of service firms responding to the survey said they expected to cut capital spending in 2020 compared to 36% of E&P officials who said that. But, on a brighter note, 24% of services firms expect to increase capex in 2020, and four in ten (40%) of E&P officials said they expected capex to grow in 2020.
Less than one in five (19%) of E&P firms said they could cover their planned capital outlays with cash from operations if West Texas Intermediate (WTI) crude oil was priced at between $50 and $54 per barrel. Four in ten (40%) said they needed prices above $55 to fund capex from operations, while a similar number (41%) said they could cover those outlays with cash from operations if WTI sold for less than $50 per barrel.
Click on the image at right to that range to see a chart of crude oil price points E&P companies needed to cover their capital spending with cash from operations. Comparing business activity in the fourth quarter to the third quarter, upstream firms reported a 5.4-point improvement. Oil and gas production both grew on a quarter-over-quarter basis, and the outlook for capital spending in the current quarter and for 2020 both gained. There also was a significant decrease in uncertainties among the E&P respondents.
Conditions were far gloomier among the oilfield services respondents, who reported fourth-quarter declines in various key categories, including: level of business activity, utilization of equipment, capital spending, employment, employee hours worked, prices received for services and operating margins. Uncertainty rose sharply for this group while companies reported a weaker outlook for the quarter.
For the fourth quarter, the Dallas Fed reported overall business activity for E&P firms and oilfield service companies as -4.2, an improvement over the previous quarter's score of -7.4, which suggests the pace of contraction has lessened for firms in Texas, southern New Mexico and northern Louisiana.
Click on the image at right to see a graphic of the Dallas Fed's Oil & Gas business activity index.During the Dallas Fed's eight-day survey period, when WTI prices averaged $60.19 per barrel and Henry Hub gas prices averaged $2.28 per million British thermal units (MMBtu), respondents were unenthusiastic in their predictions for prices for those commodities one year out. They said they expected WTI to average $58.54 per barrel at the end of 2020, and gas would sell for $2.51 per MMBtu by then.
Click on the images at right to see the respondents' predictions for WTI and natural gas prices at yearend 2020. Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
