With U.S. oil and gas production increasing as operators try to grow profits alongside rising oil prices, oilfield service costs are up.
This is according to the latest Dallas Fed Energy Survey, which measures conditions impacting energy firms in its district. Using data collected from March 14-22, the survey was released by the Federal Reserve Bank of Dallas this week.
As described by the Federal Reserve, the survey gives a business activity index with positive readings indicating expansion and negative readings indicating contraction. The index of input costs for oil services firms’ equipment jumped from 30.9 to 46.8, according to a news release on the survey released March 28.
The rise shouldn’t really come as too much of a surprise, considering some leaders of the industry’s largest oilfield service companies warned of higher prices to come. Many would agree that the oilfield service sector was hit harder than other parts during the downturn as oil and gas companies drastically slowed down spending to get a better handle on finances as oil prices plummeted. They oftentimes turned to these oilfield service companies to bring down costs.
Now that market conditions have improved costs and prices are up. The survey revealed that the index of prices rose from 22.6 to 27.9.
Activity is also up as operators produce more oil and gas. The survey indicated oil and gas production increased for the sixth quarter in a row based on information from E&Ps.
“The oil production index ticked up slightly from 33.7 in the fourth quarter to 34.3 in the first. Meanwhile, the natural gas production index edged down from 26.6 to 25.0,” the agency said.
The latest survey also brought more good news in terms of employment as the industry has been bringing back jobs that went away during the downturn. Job growth was driven by the oilfield services sector, according to the release.
“The employment index was 37.1 for services firms versus 9.0 for E&P firms. The employee hours indexes also showed a large gap: 41.9 for services firms versus 16.9 for E&P firms,” the Federal Reserve Bank said. “The aggregate wages and benefits index advanced from 25.5 to 33.8, with most of the increase coming from the oilfield services side of the industry.”
The survey also shared the industry’s thoughts on the future movement of oil and gas prices.
“On average, respondents expect West Texas Intermediate (WTI) oil prices to be $63.07 per barrel by year-end 2018, with responses ranging from $45 to $77 per barrel. Respondents expect Henry Hub natural gas prices to end 2018 at $2.91 per million British thermal units (MMBtu),” the Federal Reserve said. “For reference, WTI spot prices averaged $62.72 per barrel and Henry Hub spot prices averaged $2.65 per MMBtu during the survey collection period.”
Velda Addison can be reached at vaddison@hartenergy.com.
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