Federal bank survey shows moderate energy growth

A small oil field in Oklahoma is seeing big bets from producers | BOE Report


Energy activity in Oklahoma and other states that make up the Tenth District of the Federal Reserve Bank of Kansas City continued to expand according to its fourth quarter Energy Survey.

Chad Wilkerson, Oklahoma City Branch executive said the survey showed energy activity expanded “moderately” from a quarter ago and increased further from year-ago levels. He indicated expectations for future activity “remained strong.”

“District drilling and business activity continued to grow through the end of 2021,” said Wilkerson. “Firm revenues have risen along with higher wages and benefits for workers. Contacts also reported higher capital spending plans for 2022 compared to 2021.”

10th District Federal Reserve's manufacturing survey indicates some  optimism for Oklahoma

The survey showed an increase in year-over-year drilling and business activity. The indexes for capital expenditures, employment, and wages and benefits all indicated higher levels than a year ago. The revenues and profits indexes also remained very high. However, supplier delivery times remained higher than a year ago for a small share of firms.

Expectations indexes remained positive in Q4 2021. As far as future capital expenditures were concerned, firms were questioned about their plans. The survey found that nearly 20% expected capital spending in 2022 to increase “significantly” compared to 2021 while another 50% expected slight increases.

Only 6% of the firms expected capital spending to decline. Around a quarter of firms expected 2022 capital spending to remain close to 2021 levels. Several firms reported that inflation has driven higher capital spending costs from services and materials. Other contacts reported increased capital spending plans to expand drilling and production.

Selected Energy Comments

“There will be a need for fossil fuels for a prolonged period due to the incredibly high costs of transition to other forms of energy. Fossil fuels are still plentiful and relatively inexpensive.”

“There is not enough investment for replacement barrels [of oil]. Supply may shrink and demand will stay similar or even grow.”

“Not enough new reserves are being drilled to replace existing production.”

“Inflation is hitting the equipment purchases for new wells.”

“If demand picks up from drop in covid cases, I think oil prices [will increase] within a few months. Then demand destruction kicks in and more EVs are sold and by mid to end of decade we see gasoline demand actually start to plateau and even drop.”

“Expect prices to remain steady due to supply constraints resulting from underinvestment coupled with disproportionate demand increase.”

“Plenty of gas in the USA; European and Asian demand will fall off significantly.”

“Inability to permit enough LNG to balance the market in the US. Persistent disparity between US and global spot prices.”

“Gas will be favored internationally for its cleaner footprint. Underspending will keep prices up.”

“We will pay cash for all our [capital expenditures].”