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Fed survey: Oil and gas expansion to continue as break-even prices fall

From Staff Reports
March 29, 2017 at 11:49 p.m.


Continuing expansion of oil and gas business activity appear likely after increases in the first quarter, according to executives responding to a quarterly energy survey by the Federal Reserve Bank of Dallas.

"Nearly all survey measures pointed to further expansion," said Michael D. Plante, Dallas Fed senior economist, regarding the results released Wednesday. "Outlooks remain positive, especially among oil field services firms."

In a series of questions, respondents indicated that the break-even prices needed to profitably drill a new well have declined and averages range from $46 to $55 per barrel. That's down about 6 percent from last year, Plante said, reflecting improved efficiencies and cost-cutting measures.

"Prices needed to drill new wells in the Permian Basin, SCOOP/STACK and Eagle Ford are below $50 per barrel on average," he said, adding the declines were behind regular rig count increases across the Fed district. The Midland Basin of the Permian had the lowest break-even price of all areas, he said, at $46 per barrel.

The survey samples oil and gas companies headquartered in the Eleventh Federal Reserve District — Texas, southern New Mexico and northern Louisiana — many of which have national and global operations.

Exploration and production firms reported oil and natural gas production increased for a second straight quarter. The oil production index rose to 13.1, and the natural gas production index advanced to 17.6; this suggests that oil and gas production is rising at an accelerated rate.

Outlooks continued to improve, especially for oil field services firms. Capital expenditures continued to increase in the first quarter, and most E&P firms upped their expectations of 2018 capital spending.

Despite recent oil price declines, on average, respondents expect West Texas Intermediate prices to climb to $53.49 per barrel by year-end.

Data were collected March 15-23, and 153 energy firms responded. Of the respondents, 78 were E&P firms and 75 were oil field services firms.

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