1Q Oil & Gas activity report
2021 US production expected to remain flat with single digit to low double-digit growth in 2022
April 10, 2021
The Federal Reserve Bank of Kansas City posted the results of their 2021 first quarter energy survey. It indicates that Tenth District energy activity continued to increase moderately from levels one year ago, and that expectations are for it to continue to increase.
This quarter firms were asked what oil and natural gas prices were needed for drilling to remain profitable on average across the fields in which they are active. The average oil price needed was $53 per barrel, with a range of $35 to $80. This average was higher than prices needed to remain profitable in Q3 2020, but still lower than prices for the past several years. The average natural gas price needed was $2.94 per million Btu, with responses ranging from $0.75 to $5.00.
Firms were again asked what they expected oil and natural gas prices to be in six months, one year, two years, and five years. Overall, expected oil and natural gas prices were higher than previous price expectations in 2020. The average expected WTI prices were $62, $65, $67, and $70 per barrel, respectively. The average expected Henry Hub natural gas prices were $2.72, $2.94, $3.14, and $3.50 per million Btu, respectively.
Firms were also asked about the crude oil supply gap. Around 42% of firms indicated there would be a supply gap beyond 2021, with 37% of firms reporting no gap would exist after this year.
Selected Energy Comments
"Full time employment is way down, will continue to be down, and will be replaced with more contract/part time workers."
"We anticipate 2021 US production to remain flat with single digit to low double-digit growth in 2022. Policy and fuel switching concerns are generally over-estimated in light of the practical and physical realities of the energy mix. Oil and gas will become cleaner and continue to secure its role as the primary fuel source for several decades to come."
"A tremendous amount of uncertainty will exist on both the demand side and politically during the next 12 to 24 months. Conquering Covid-19 and returning to normal market demand will be the first step. US policy change will then provide the next tailwind or headwind depending upon direction and balance."
"Production in the US was expected to move consistently upward. That is over. Now the question is how quickly it will fall and stay below 10mmbd."
"It appears that US shale producers are less likely to immediately respond with increased drilling/completion rates when oil price increases provide them with increased cashflow."
"Capital markets are demanding E&P companies to generate cash flow in excess of their capital investment, or in other words generate free cash flow. With the upward price movement public E&Ps so far have not raised capital investment."
"The years of over-spending by shale drillers will limit the survivors’ opportunities to fund drilling programs. The oil markets will become more dependent on the actions of OPEC producers as they regain market share. This will become more obvious once investors realize many of the horizontal plays have been over-drilled and billions were wasted on wells that did not need to be drilled."
"We have lost many employees that left when the price fell apart last spring. It has been difficult to hire appropriately skilled labor."
"Investor sentiment has changed from growth to value. A more cautious approach to growth will be the focus for the next 12 to 24 months as demand recovery occurs. Demand will drive decisions long-term."
Click on this link to read the full report and see all the charts and graphs: Tenth District Energy Activity Continued to Increase Moderately April 9, 2021
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