By: Bill Holland – S&P Global Market Intelligence – Labor shortages were the primary factor limiting oil and gas production growth in the U.S. Rockies and Midcontinent regions during the first quarter, according to energy executives surveyed by the Federal Reserve Bank of Kansas City.
Investor pressure to restrain spending was the second-leading reason that operators held back on growth, according to the bank’s quarterly energy survey released on April 7. The bank surveyed 33 energy executives at the end of March.
The index of drilling and business activity declined slightly from the first quarter of 2021, the bank said, but capital spending, wages, and access to credit reached record-high levels.
Executives told the bank that they were making profits at average natural gas prices above $3.72/MMBtu. They would need to see prices averaging above $4.53/MMBtu to be tempted to increase production, although the responses to that poll question ranged from $3.50/MMBtu to $6/MMBtu. This hurdle may have been overcome: Day-ahead cash prices at the benchmark Henry Hub averaged $4.64/MMBtu in the first quarter, according to S&P Global Market Intelligence data.
The bank’s Oklahoma City branch executive and economist Chad Wilkerson said in a statement that the survey data indicated that energy activity increased moderately in the first quarter, with expectations that future activity will remain strong. Survey participants said they expect employment, wages, and credit access to all remain high.
The Kansas City Fed’s survey was in mild contrast to a similar survey of energy companies released on March 25 by the Federal Reserve Bank of Dallas. Executives in the Dallas survey said investor pressure to keep spending down was the primary barrier to growth.