Survey: Supply Chain, Labor Woes Drag on E&P Growth

Copyright © 2022 Energy Intelligence Group All rights reserved. Unauthorized access or electronic forwarding, even for internal use, is prohibited.

Optimism remained high among US oil executives heading into the third quarter of 2022, according to a survey conducted by the Dallas Federal Reserve, although headwinds continue to build due to rising operational costs, ongoing supply chain constraints and significant labor shortages.

Results from the Dallas Federal Reserve’s latest quarterly energy survey, conducted from Jun. 8-16, show that over 70% of the 137 energy firms that participated — comprising 85 E&Ps and 52 oil-field services firms based in Texas, southern New Mexico and northern Louisiana — said that their outlook for their respective firms had improved in the second quarter.

Just over 40% of the E&P firms surveyed said they expect oil production to increase in the April-June period this year from the previous three months, while nearly 50% expected it to remain level. Similar expectations were reported for natural gas output.

Roughly 75% of respondents said they expected US crude price benchmark West Texas Intermediate (WTI) to be at $100 per barrel or higher at the end of the year.

Storm Clouds Build

However, other results signaled potential trouble on the horizon for growth through the rest of the year and beyond.

Almost half of the executives surveyed said that supply chain issues are having a “significantly negative” impact on their companies, while most of the other half said the impact was “slightly negative.”

Additionally, two-thirds of respondents said they didn’t expect those supply chain problems to be resolved within the next 12 months, and most of the remainder felt it would take at least seven months before conditions improved.

Nearly 90% of the executives said they were dealing with shortages in “steel tubular goods” such as drill pipes and casings, with 50% describing those shortages as “significant.” More than 80% reported shortages in equipment, and about two-thirds reported running short of frack sand.

The supply chain issues are slowing start-up times and ultimately impacting investment decisions, as executives are concerned that by the time certain projects are able to come on line, commodity prices will have come back down to earth.

“We are experiencing significant delays in obtaining materials and services, and costs are substantially increasing,” said one respondent. “We will shortly be ceasing investment in any new operations owing to the combination of rising costs, supply-chain slowness and our view that a recession is coming that will drop oil and natural gas prices significantly.”

“After seven years of depressed oil prices, it is nice to have the capital to drill, but with a recession looming and the possibility that the war in Ukraine will end in the next few months, the price of oil could significantly decrease,” said another E&P executive. “I do not want to get caught again making obligations based on high prices that I must fulfill when low prices come back.”

Labor shortages also continued to impact upstream operations in the second quarter. Two-thirds of respondents reported dealing with personnel shortages, with 13% of those describing those shortages as “significant.”

The limited labor supply is affecting every facet of our business,” said an oil-field services executive. “Supplier factories in Ohio are short-staffed and underutilized. There is a significant shortage of technical labor to support oil and gas operations in the field. Seemingly all business activity in West Texas is at capacity, and there is limited room for further growth.”

Pointing Fingers

Several executives also directed blame toward the Biden administration for discouraging investment and sowing uncertainty in the oil and gas industry.

“The [federal] government's anti-oil, anti-gas and anti-pipeline stance has caused us to not pursue expansive projects,” said one respondent.

“Our industry is praying for a shift in the midterm elections so we can prevent the [Biden] administration from destroying our economy any further,” said an E&P executive. “I love high oil and natural gas prices, but they are really hurting the economy and citizens are paying the price.”

Others pointed at investors prioritizing climate and energy transition concerns over more traditional energy growth.

“Wall Street is suddenly on the new fad of the day, which is everything green and environmental, social and governance,” said one respondent. “Money for small developers is virtually impossible to arrange these days.”

“Investors are still not coming back to the well, so to speak. Private investors like endowments and foundations are structurally gone for good, and it is actually different this time,” said another E&P executive. “The [Biden] administration may be getting blamed, but it is the investors’ fault.”

Oil Forecasts, Corporate Strategy , Independent E&Ps, Oil-Field Services, Oil Prices, Oil Supply
Wanda Ad #2 (article footer)
Crude production in the US shale sector is expected to rise by about 141,000 b/d in September, according to the EIA.
Mon, Aug 15, 2022
Nigeria has renewed five deepwater oil leases with industry heavyweights such as Exxon Mobil, Chevron, TotalEnergies, Shell and Equinor.
Mon, Aug 15, 2022
Opec has lowered its forecast of global oil demand in the third and fourth quarters of this year by 630,000 b/d compared with its July forecast.
Thu, Aug 11, 2022