Surveys Are Backing Optimism

Recent reports add credence to our gut instincts that optimism is running high, and oil companies will likely increase spending in 2017. According to a report released by Barclays on Monday, January 09, 2017, oil companies are expected to raise exploration and production spending in 2017 by 7%, the first increase in three years.

The Houston Chronicle similarly reported recently that North American exploration and production companies will spend one-quarter more this year, leading global spending growth among oil and gas companies. U.S. shale drillers had cut spending 38% in 2016.

These numbers largely comport with the Dallas Fed Energy Survey, conducted by the Federal Reserve Bank of Dallas, which released results on December 29, 2016. The survey was based on data collected from December 14-22, 2016 from 147 energy firms of which 67 were E&P firms, and 80 were oilfield services firms. Key points from the survey were as follows:

• Business activity continued to increase in the fourth quarter of 2016. The business activity index—the survey’s broadest measure of conditions facing Eleventh District energy firms—rose to 40.1 from last quarter’s 26.7 reading. Several indicators expanded on a quarterly basis for the first time in 2016, including employment and production. Outlooks also improved, despite some skepticism about recent oil producer agreements.
• Oil and gas production stopped declining this quarter after falling throughout the year, according to executives at exploration and production (E&P) firms. The oil production index surged nearly 20 points to 9.0, and the natural gas production index was 3.1, up from -20.6 last quarter.
• Oil and gas production stopped declining this quarter after falling throughout the year, according to executives at exploration and production (E&P) firms. The oil production index surged nearly 20 points to 9.0, and the natural gas production index was 3.1, up from -20.6 last quarter.
• Measures of nonlabor expenses suggested some price pressure. Executives at oilfield services firms reported higher input costs, with the index rising to 13.1 from last quarter’s -3.6. Executives at E&P firms reported lease operating expenses had risen, with the index up from -15.9 to 14.0.
• Six-month outlooks improved markedly. The company outlook index shot up 38 points to 57.1. Capital expenditures rose at a faster quarter-over-quarter pace, as did E&P firm’s expectations of 2017 capital spending.

In addition, Reuters conducted a survey of 5,000 Energy Professionals on current market conditions (full disclosure: the author was asked to and did participate in the survey). The results can be found here: http://www.reuters.com/article/oil-forecasts-kemp-idUSL5N1F242S?rpc=401&. According to the results, Brent prices are expected to average $55-60 per barrel in 2017, and $60-65 per barrel in 2018. However, prices at the end of the decade are expected to average only $70.00 per barrel. Nevertheless, the survey did indicate that overall, many of us have turned substantially more bullish on oil over the coming years than a year ago.

By: Ty Chapman

Five Star Metals, Inc.

Raising the Bar for Customer Service and Quality

Twitter: @FSM_TY

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