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Survey indicates oil, gas slump easing in severity

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Oil and gas activity continued to drop last quarter, although at a slower rate, according to a survey of executives in the oil and gas industry.

Dallas Federal Reserve analysts last week released the Dallas Fed Energy Survey for the third quarter of 2020 after receiving responses from 166 oil and gas industry executives, both in the production and exploration arena (112 responses) and in the oil and gas services group (54 responses).

More executives reported decreased activity than those claiming increased activity, but at a much smaller pace than in the previous quarter.

The report explained, “Special questions this quarter focus on OPEC’s role in determining oil prices going forward, whether U.S. crude oil production has peaked, upstream firms’ primary goals for the coming six months, and what price is needed to see a substantial increase in the oil rig count and the completion of drilled but uncompleted wells.”

The survey was made between Sept. 9-17, a period when West Texas Intermediate (WTI) spot prices of oil averaged $38.47 per barrel.

Most executives — 74% — felt future oil prices are in OPEC’s court, but they lent their expertise to estimates of the expected year-end price.

Estimates ranged from $30-$60 for a barrel of oil at the end of 2020, but more than three-quarters of respondents narrowed the forecast to $40-$50, with the lower half of the range taking the larger share. The average was $43.27 per barrel.

Meanwhile, asked what the WTI oil price should be to result in a substantial increase in oil rig activity, the executives focused on ranges over $50 per barrel, meaning it’s too soon to expect increased rig activity by the end of the year.

Asked specifically whether they believe U.S. oil production has peaked, 66% of the executives answered positively while the other 34% expect the peak is yet to come.

On business activity, the Dallas Fed analysts said in their report, “Firms are asked whether business activity, employment, capital expenditures and other indicators increased, decreased or remained unchanged compared with the prior quarter and with the same quarter a year ago. Survey responses are used to calculate an index for each indicator. Each index is calculated by subtracting the percentage of respondents reporting a decrease from the percentage reporting an increase.”

WHEN THE DECREASE PERCENTAGE is larger than the increase percentage, the index number is negative and activity is going down. Otherwise, the index is positive and activity is increasing.

The Economic Development Corporation of Lea County’s president and CEO Missi Courier said the current situation offers opportunities for diversification while continuing to support the oil and gas industry.

“What we’re doing to stay the course is finding and continuing to promote and encourage oil and gas development throughout the Permian Basin, especially Lea County,” Courier said, not happy the oil and gas industry activity continues to drop even a little, but also not discouraged about the county’s economy.

“However, we’re also working to find ways to diversify the economy in industries that would be brand new to the region, but also find industries that support and encourage our oil and gas backbone,” Courier continued.

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In the past, when attempting to gain the interest of new industries, Courier said she had to admit the workforce in Lea County was mostly gainfully employed and housing for workers brought into the county would be hard to find.

“Now that we have a little bit more flexibility in our workforce and our housing, we can go to industries that we couldn’t have gone to before because we didn’t have what they needed to be successful in this region,” Courier said.

“That doesn’t mean we’re forgetting about oil and gas, the industry that continues to give so much to this community, but it does open up more of an opportunity to look toward other economic base industries that can help stabilize our economy going forward,” she concluded.

Dallas Fed economic analysts presented executives from exploration and production (E&P) firms with eight potential goals for the next six months and asked them to select their firm’s primary goal from the list.

RESPONSES VARIED significantly. Nineteen percent of executives selected “maintain production” as the primary goal over the next six months. The options “grow production,” “find additional sources of capital” and “reduce debt” were each selected by 16 percent of executives. Other options each received 12 percent or less.

“The responses were markedly different than what was observed when a similar question was asked in fourth quarter 2018 regarding E&P’s goal for 2019, in which the top response was ‘grow production,’” the analysts stated in their report.

For the oil and gas support services firms executives, the analysts also presented eight potential goals and asked for their firm’s primary goal for the next six months.

Thirty-one percent of executives selected “grow business activity” as the primary goal. A total of 28 percent chose “maintain business activity” and 11 percent indicated “reduce costs” and “other.” Other options each received seven percent or less, according to the analysts’ report.

Many oil wells are classified as DUCs (drilled but uncompleted). The Dallas Fed economic analysts asked executives what the crude oil price would have to be to expect a substantial increase in completion of those wells.

Thirty-six percent of executives said they expect a substantial increase in the completion of DUCs if oil prices were $46-$50 per barrel. Twenty-eight percent of executives expect a substantial increase if oil prices were $51-$55 per barrel.

Eighteen percent of responding oil company executives believe if oil prices were $41-$45 a barrel, there would be a substantial increase, while 16 percent believe if the price of oil were at or above $56 there would be a substantial increase. Only 2% expect a substantial increase at below $40 a barrel.

Currier, the Lea County economic development executive concluded, “Lea County is certainly tougher than the times and it will be back and better as things continue to improve economically.”

Curtis Wynne may be contacted at reporter3@hobbsnews. com.

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