Oil, gas sector in southern U.S. expands amid higher costs, worsening supply-chain delays

HOUSTON, June 23 (Xinhua) -- Activity in the oil and gas sector in southern United States expanded at a robust pace in the second quarter of 2022, amid escalating costs and worserning supply-chain delays, according to a survey released by the Federal Reserve Bank of Dallas on Thursday.

The Dallas Fed conducts the Dallas Fed Energy Survey quarterly to obtain a timely assessment of energy activity among oil and gas firms located or headquartered in the Eleventh Federal Reserve District which consists of Texas, northern Louisiana and southern New Mexico.

The business activity index, the survey's broadest measure of conditions facing energy firms in the area, edged up to 57.7 from 56.0 in the first quarter, registering its highest reading in the survey's six-year history.

Oil and natural gas production increased, though the pace eased slightly, according to executives at exploration and production (E&P) firms.

The oil production index remained well above average but fell from 45.0 in the first quarter to 32.6 in the second quarter, the survey showed. The natural gas production index declined five points to 35.3.

During the second quarter of this year, costs increased for a sixth straight quarter. Among oilfield services firms, the index for input costs jumped from 77.1 to 88.0, hitting a record high.

None of the 52 responding oilfield services firms reported lower input costs, according to the survey. Among E&P firms, the index for finding and development costs increased from 56.0 in the first quarter to 70.6 in the second.

Furthermore, the index for lease operating expenses also advanced notably, from 58.9 to 74.1. Both indexes reached highs for the survey's six-year history.

Meanwhile, it is taking longer for firms to receive materials and equipment. The supplier delivery index edged up from 30.6 to 31.9, another record high, the survey found.

Among oilfield service firms, the measure of lag time for deliveries jumped from 25.5 to 36.0, also a record high and suggestive of delays acquiring products and/or services.

However, oilfield services firms reported improvement across key indicators. The equipment utilization index jumped from 50.0 in the first quarter to 66.7 in the second quarter. The operating margin index advanced from 21.3 to 32.7, a record high. The index of prices received for services increased from 53.2 to 62.7.

All labor market indexes in the second quarter remained elevated, pointing to strong growth in employment, hours and wages.

The aggregate employment index of the survey posted a sixth consecutive positive reading but declined from 28.0 to 22.6, indicative of a slightly slowing rate of expansion in a very active job market. The aggregate employee hours index also remained positive but dipped from 36.0 to 31.4. The aggregate wages and benefits index decreased from 54.0 to 48.6.

Six-month outlooks improved significantly, with the index at 65.9, a highly elevated reading.

The outlook uncertainty index remained positive but fell from 31.9 to 12.4, suggesting that while uncertainty continued to increase on net, fewer firms noted a rise this quarter than last quarter.

On average, respondents to the survey expect a West Texas Intermediate (WTI) oil price of 108 U.S. dollars per barrel by year-end 2022; responses ranged from 65 dollars to 160 dollars per barrel.

Survey participants expect Henry Hub natural gas prices of 7.55 dollars per metric million British thermal units (MMBtu) at year-end. For reference, WTI spot prices averaged 119.56 dollars per barrel during the survey collection period, and Henry Hub spot prices averaged 8.38 dollars per MMBtu, according to the survey.

The survey collected data between June 8 and June 16, and 137 energy firms responded, including 85 exploration and production firms, and 52 oilfield services firms.