Energize Weekly, January 13, 2021
After a punishing year, oil and gas activity in a swatch of oil county from Louisiana through Texas to New Mexico rebounded in the fourth quarter of 2020, according to a survey by Dallas Federal Reserve Bank.
The bank queried oil company executives in its region and calculated that its business activity index had swung from -6.6 in the third quarter to 18.5 in the fourth quarter.
“This is the first positive reading for the business activity index since first quarter 2019, with the increase driven by both E&P [exploration and production] and oilfield services firms,” the bank said. “This is a stark recovery from the significantly negative readings in the first and second quarters of 2020.”
Oil production also stabilized after three quarters of decline, swinging in the activity index to positive 1 from -15.4 in the third quarter.
There are still problems as jobs continue to be lost, though not at as great a rate, and the majority of executives said they expect continued job losses from consolidation and has weaker companies are bought up.
“Employment continued to decline, but layoffs abated somewhat,” the bank said. The activity index remained a negative 11.7.
The Dallas bank covers a region that includes northern Louisiana, Texas and southern New Mexico, and covers the Permian Basin, the nation’s biggest oil producing areas, as well as the Eagle Ford and Haynesville shales.
The survey, conducted between Dec. 9 and 17, included 146 energy firms – 97 exploration and production companies and 46 oil field service companies.
Another sign of revival was an increased prospect of capital expenditures, after budgets were slashed in 2020. On the activity index the change was to 12.5 from -16.4
Almost half the companies said they anticipated increasing capital spending in 2021, 14 percent said that expect a significant increase in spending.
Capital spending for oil field services companies, while improving, remained in negative territory in the index.
On average, industry executives expect the price of West Texas Intermediate (WTI) crude will reach $50 a barrel by the end of 2021, although responses range from $35 to $70 a barrel.
The spot price for a barrel of WTI oil averaged $38.96 in 2020, according to the U.S. Energy Information Administration. During the survey period the WTI spot price averaged $47 a barrel.
The price of natural gas at the Henry Hub is expected to rise from $2.60 per million Btu in mid-December 2020 to $2.76 per million Btu by the end of 2021, according to the survey.
Still, even with firmer commodity prices, 47 percent of the executives surveyed said they expect trend for consolidation in the sector to continue with the number of publicly held E&P firms shrinking to between 47 and 38. A quarter of the respondents said the remaining number could be as low as 25 to 36 companies.
The fourth quarter of 2020 saw the biggest M&A activity of the year with $27 billion worth of deals, according to the industry data analytics firm Enverus, with most of the activity focused in the Permian Basin.
The two biggest acquisitions were ConocoPhillips’ purchase of Midland, Texas-based Concho Resources for $13.3 billion and Pioneer Natural Resources buying Parsley Energy, another Permian Basin operator, for $4.5 billion.
“As anticipated, additional merger activity during Q4 centered on E&Ps with high quality lands and reasonable debt loads, and the Permian Basin is the most target-rich region under those criteria,” Andrew Ditmar, an Enverus analyst said in a statement.
