Texas’ oil and gas industry, battered this year by the pandemic, appears to be entering the new year on the rebound — though a return to steady profitability is a long way off, according to the Federal Reserve Bank of Dallas.
In a survey of oil and gas executives, the Dallas Fed found that the industry grew for the first time since early 2019.
And thanks in part to the start of COVID-19 vaccine distribution, producers are more optimistic about the next six-month than they were earlier this year, and less uncertain about what’s ahead for the industry.
Oil prices collapsed in the spring as travel restrictions and stay-at-home orders cut demand.
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“While their outlook has slightly, marginally improved this past quarter, the current situation in oil and gas is worse than it was at the end of 2019,” said Kunal Patel, a business economist with the Dallas Fed.
“The situation was very dire in quarter one and quarter two, and so an improvement in the outlook is coming from a very low base,” he said.
The pandemic wasn’t the only problem for energy companies earlier this year. A price war between Russia and Saudi Arabia resulted in overproduction and a supply glut, which also sent prices tumbling.
Oil prices are down nearly 21 percent since the start of the year, though the price of West Texas Intermediate crude has picked up over the last two months. A barrel of WTI sold for $48.52 Thursday afternoon.
As a result, nearly half of firms surveyed by the Dallas Fed said they plan to increase their capital spending in 2021. A quarter of respondents plan to keep that spending flat.
“An increase in capital spending means that executives are a little bit more certain,” Patel said. “Logically, you would put more investment dollars into something if the situation is improving.”
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One executive told the Dallas Fed they expect the glut of oil to decline in 2021, pushing up prices.
Some executives expressed concern that President-elect Joe Biden’s expected renewable energy policies could harm oil and gas producers, including those who drill on federal lands — which Biden has said he may ban.
Even so, the recent rally in oil prices has driven the XOP, an exchange-traded fund that tracks U.S. oil production and exploration firms, to outperform the S&P 500 index since election day.
“While the oil markets remain volatile, and we expect a shift in policy stance on environmental topics related to a Biden presidency, the market remains incrementally optimistic that the bottom of this cycle is behind us,” said analysts at Enverus, an Austin-based energy research and analytics firm based, in a report in early December.
But costs remain a concern for oil and gas firms in 2021 and beyond, which is driving acquisitions and consolidation in the industry.
About half of executives expect at most 48 independent energy firms to be listed on stock exchanges by 2022, down from 60 firms currently.
“There are currently signs of improvement,” Patel said. “However, 2020 has been a very challenging year. Everyone would agree the industry currently is still impacted from COVID-19, and they’re not at the same place as they were at the end of of 2019.”
diego.mendoza-moyers@express-news.net
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January 01, 2021 at 05:00PM
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