Released October 12, 2020 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The outlook for oil and gas producers in Texas, northern Louisiana and southern New Mexico improved in the third quarter, according to the latest survey from the Dallas Federal Reserve Bank (Dallas, Texas). But the quarter-over-quarter improvement is largely because the just-completed quarter was being compared with the second quarter of 2020, an historically awful period when crude oil prices briefly dipped into negative territory.
If working in a boom-and-bust industry translates into a similarly volatile outlook--call it boom-and-gloom--the quarterly survey, released September 23, reflects an improving but still bleak outlook for oil production. Two-thirds of those surveyed said they thought U.S. oil production had peaked, versus one-third who said it had not.
Click on the image at right to see responses from oil producers and oilfield services firms about whether U.S. oil production had peaked.
By an even wider margin of 74% to 26%, respondents said they thought the Organization for the Petroleum Exporting Countries (OPEC) would play a larger role in determining global oil prices going forward.
The survey was conducted September 9-17. It received 166 responses: 112 from exploration & production (E&P) companies and 54 from oilfield services firms. The companies were either headquartered or operated in Texas, northern Louisiana and southern New Mexico.
Click on the image at right to see responses to a question about OPEC's role in determining future global oil prices.
In conducting the quarterly query, the federal bank asked respondents whether business activity, employment, capital outlays and other indicators increased, decreased or stayed the same compared with the prior quarter and the year-earlier quarter. The responses were used to calculate an index for each measure. The indexes were calculated by subtracting the percentage of respondents reporting a decline from the percentage reporting an increase. A positive index number, or a negative score that was less negative than the prior period, represents an improving outlook. A negative score that becomes even more negative on a quarter-over-quarter or year-over-year basis represents a deteriorating outlook.
The survey said third-quarter business activity remained negative, but improved over second-quarter activity. "The business activity index -- the survey's broadest measure of conditions facing U.S. Federal Reserve Eleventh District firms -- remained in negative territory, but improved from -66.1 in the second quarter to -6.6 in the third quarter, suggesting the pace of contraction has significantly lessened," the survey said.
The outlook from E&P firms improved "significantly," while still remaining negative, the bank report said. Responses from E&P firms pushed the oil production index upward, from -62.6 in the second quarter to -15.4 in the third quarter. The natural gas production index also surged, but remained negative, improving from -48.1 in the second quarter to -10.1 in the third quarter.
The index for capital spending among upstream companies also improved in the third quarter, though it, too, remained underwater. The index improved to -16.4 in the just-completed quarter, up from -66.1 in the earlier period.
Conditions in the oilfield services sector continued to deteriorate, though at a slower pace than in the earlier period, the survey said.
Respondents from both the E&P and oilfield services sector had a bleak outlook on oil prices. During the survey period, West Texas Intermediate (WTI) spot prices averaged $38.47 per barrel, just a few dollars less than their current prices. Most saw only marginal improvement by yearend: Less than half thought WTI prices would be between $40.00 to $44.99 per barrel by yearend 2020. About a quarter projected oil prices would be between $45 and $49.99 per barrel while slightly over 10% had a more bearish outlook, expecting WTI prices to range between $35 and $39.99 per barrel when 2020 ends.
Click on the image at right to see what respondents thought WTI prices would be on December 31, 2020.
The outlook for natural gas prices was a bell-shaped curve, with over four in 10 seeing prices at December 31, 2020, between $2.40 and $2.79 per million British thermal units (MMBtu). Between one-fifth and one-quarter of respondents felt prices would either be higher, or lower, than that. Smaller minorities said they expected prices to be either less than $2 per MMBtu or more than $3.20 per MMBtu, by the end of this year.
Click on the image at right to see a distribution of predictions about the price of natural gas at the end of this year.
E&P firms said their top goals over the next six months were to "maintain production" (about 18.5% of answers), "grow production" (about 15.5% of answers) and "reduce debt" (also about 15.5%). Oilfield service companies, on the other hand, listed their top six-month goals as "grow business activity" (about 32% of responses), "maintain business activity" (roughly 28% of answers) and "reduce costs" (approximately 10% of responses).
The verbatim comments from those who took the survey also were enlightening.
One E&P company representative said, "There will be no recovery as long as oil demand remains depressed." Commented another upstream representative: "A Biden administration would wreak havoc on our industry-- way worse than OPEC. It would put us out of business. We could not survive a Green New Deal." Observed a third upstream player: "Lots of undeclared bankruptcies are still in the pipeline in the shale plays. Private equity (PE) will not save the day for them."
The only comment from an oilfield service firm was, "Cash flow is too low, and debt is still too high, for the majority of oil and gas players in the U.S. Nobody is getting fired for delaying drilling and completion (D&C) work, as cash is king."
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/.
If working in a boom-and-bust industry translates into a similarly volatile outlook--call it boom-and-gloom--the quarterly survey, released September 23, reflects an improving but still bleak outlook for oil production. Two-thirds of those surveyed said they thought U.S. oil production had peaked, versus one-third who said it had not.
By an even wider margin of 74% to 26%, respondents said they thought the Organization for the Petroleum Exporting Countries (OPEC) would play a larger role in determining global oil prices going forward.
The survey was conducted September 9-17. It received 166 responses: 112 from exploration & production (E&P) companies and 54 from oilfield services firms. The companies were either headquartered or operated in Texas, northern Louisiana and southern New Mexico.
In conducting the quarterly query, the federal bank asked respondents whether business activity, employment, capital outlays and other indicators increased, decreased or stayed the same compared with the prior quarter and the year-earlier quarter. The responses were used to calculate an index for each measure. The indexes were calculated by subtracting the percentage of respondents reporting a decline from the percentage reporting an increase. A positive index number, or a negative score that was less negative than the prior period, represents an improving outlook. A negative score that becomes even more negative on a quarter-over-quarter or year-over-year basis represents a deteriorating outlook.
The survey said third-quarter business activity remained negative, but improved over second-quarter activity. "The business activity index -- the survey's broadest measure of conditions facing U.S. Federal Reserve Eleventh District firms -- remained in negative territory, but improved from -66.1 in the second quarter to -6.6 in the third quarter, suggesting the pace of contraction has significantly lessened," the survey said.
The outlook from E&P firms improved "significantly," while still remaining negative, the bank report said. Responses from E&P firms pushed the oil production index upward, from -62.6 in the second quarter to -15.4 in the third quarter. The natural gas production index also surged, but remained negative, improving from -48.1 in the second quarter to -10.1 in the third quarter.
The index for capital spending among upstream companies also improved in the third quarter, though it, too, remained underwater. The index improved to -16.4 in the just-completed quarter, up from -66.1 in the earlier period.
Conditions in the oilfield services sector continued to deteriorate, though at a slower pace than in the earlier period, the survey said.
Respondents from both the E&P and oilfield services sector had a bleak outlook on oil prices. During the survey period, West Texas Intermediate (WTI) spot prices averaged $38.47 per barrel, just a few dollars less than their current prices. Most saw only marginal improvement by yearend: Less than half thought WTI prices would be between $40.00 to $44.99 per barrel by yearend 2020. About a quarter projected oil prices would be between $45 and $49.99 per barrel while slightly over 10% had a more bearish outlook, expecting WTI prices to range between $35 and $39.99 per barrel when 2020 ends.
The outlook for natural gas prices was a bell-shaped curve, with over four in 10 seeing prices at December 31, 2020, between $2.40 and $2.79 per million British thermal units (MMBtu). Between one-fifth and one-quarter of respondents felt prices would either be higher, or lower, than that. Smaller minorities said they expected prices to be either less than $2 per MMBtu or more than $3.20 per MMBtu, by the end of this year.
E&P firms said their top goals over the next six months were to "maintain production" (about 18.5% of answers), "grow production" (about 15.5% of answers) and "reduce debt" (also about 15.5%). Oilfield service companies, on the other hand, listed their top six-month goals as "grow business activity" (about 32% of responses), "maintain business activity" (roughly 28% of answers) and "reduce costs" (approximately 10% of responses).
The verbatim comments from those who took the survey also were enlightening.
One E&P company representative said, "There will be no recovery as long as oil demand remains depressed." Commented another upstream representative: "A Biden administration would wreak havoc on our industry-- way worse than OPEC. It would put us out of business. We could not survive a Green New Deal." Observed a third upstream player: "Lots of undeclared bankruptcies are still in the pipeline in the shale plays. Private equity (PE) will not save the day for them."
The only comment from an oilfield service firm was, "Cash flow is too low, and debt is still too high, for the majority of oil and gas players in the U.S. Nobody is getting fired for delaying drilling and completion (D&C) work, as cash is king."
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/.
