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    Dallas Fed: Oilfield activity rises at robust pace


    June 28, 2022 - Mella Mcewen, Midland Reporter-Telegram, Texas

     

      Jun. 28—Oil and gas activity continued to rise at a robust pace in the second quarter, according to the Federal Reserve Bank of Dallas' most recent energy survey.

      But that increase is coming with higher costs and rising supply chain concerns, said Kunal Patel, senior business economist with the bank.

      Speaking with the Reporter-Telegram by telephone from his Dallas office, Patel said while activity is expanding at a robust pace and business outlooks are improving, cost pressures are also escalating and supply chain bottlenecks seem to be worsening.

      He said this quarter's survey decided to delve into supply chain concerns.

      "We all know activity is increasing from the rig count, completions. We can't tell as easily what is going on with supply chains," he explained.

      While respondents to the first quarter survey indicated supply chain issues, he said second quarter results indicated those issues had deepened. Approximately 47% of respondents said supply chain issues had had a significantly negative impact and another 47% said issues had had a slightly negative impact on business. More than 66% of respondents said it will take more than a year to resolve supply chain issues. The supply of steel tubular goods is seen as in significant shortage while availability of personnel, equipment and sand is seen as in shortage.

      Respondents also said the time to receive materials and equipment is taking longer with the supplier delivery index edging up to 31.9, breaking last quarter's record of 30.6.

      As the industry copes with supply chain issues, it is also contending with continued cost increases. The survey found costs rose for a sixth consecutive quarter with the index for input costs for service companies jumping to a record 88 from 77.1 in the first quarter. Among exploration and production firms, the index for finding and development costs rose to a record 70.6 from 56 in the first quarter and the index for lease operating expenses jumped to 74.1 from 58.9.

      Patel said respondents were asked, if they decided to drill a well above and beyond what was already planned, how long it would take to do so, and most — 33 percent — said four to six months, while 24 percent said seven to nine months and another 24 percent said 10 to 12 months.

      The labor market indexes also remained elevated, pointing to strong employment growth, he said. "It's a slightly slowing rate of expansion but still a very active job market."

      There was a wide range of oil price expectations — from a low of $65 to a high of $160 — with most expecting oil prices to end the year at an average of $108. That's up from the $93 in the first quarter, when price expectations ranged from a low of $50 to a high of $200.

      Most respondents expect the nation's crude oil production to grow by a million barrels per day or less, with 37 percent saying between 800,000 barrels and 1 million barrels and another 34 percent forecasting growth by 800,000 barrels or less.

      "Our main conclusion is activity is rising at a robust pace, outlooks are improving, there's still uncertainty, production continues to rise, cost increases are escalating and supply chain concerns are having an impact," said Patel.

      ___

      (c)2022 the Midland Reporter-Telegram (Midland, Texas)

      Visit the Midland Reporter-Telegram (Midland, Texas) at www.mywesttexas.com

      Distributed by Tribune Content Agency, LLC.

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