Permian Basin hit hardest by drop in demand for oilfield services, says Federal Reserve Bank
Oil and gas producers got a glimmer of good news when the Federal Reserve Bank reported that oilfield services are costing 20 to 3o per cent less since the start of 2015.
The information came from the Fed’s June Beige Book, a monthly assessment of economic activity in 12 regional districts across the country, which also report that the rig count and demand for oilfield services fell in the Eleventh District, with losses concentrated in the Permian Basin.
The Fed says the outlook remains negative, with most firms expecting a 30 and 40 per cent drop in capital expenditures this year and further cuts in 2016.
One “silver lining” is that contacts said industry costs continued to decline, with firms reporting 20 to 30 per cent reductions in drilling and completion costs.
As American Energy News reported last week, industry analysts IHS say the compounding effect of high-graded drilling locations and the continuing reduction in drilling and completion costs are helping American shale exploration and production companies “substantially mitigate the damage to their balance sheets brought on by the 2014 oil price decline.” That means a dollar spent in 2015 may produce up to 45 per cent more oil next than it did last year.
“We expect those drilling and completion costs to fall by about 15 per cent on average and climb to reach 30 per cent by year-end,” said Raoul LeBlanc, senior director of research at IHS Energy.
The Fed says that the Kansas City District – which includes Colorado, Nebraska and Oklahoma – “reported continued layoffs at regional oil and gas firms, but contacts said that if a further rebound in oil prices occurs and holds, drilling could ramp back up later this year.”