Energy Companies Increase Spending in 2023 As Oil Prices Rebound

Oil and gas companies are have raised their budgets for more spending in 2023.

Oil and gas companies plan to increase their capital expenditure budgets in 2023 due to gains in crude oil prices, executives said in a recent Dallas Federal Reserve's energy survey.

The majority of executives said their companies will increase their capital spending next year compared with 2022. 

Management from 148 oil and gas companies responded to this question in the survey that was conducted between Dec. 7 to 15 with 39% of executives who said the amount of capital spending would rise slightly. Another 25% estimate a significant increase while only 22% said spending in 2023 would mirror 2022 levels. Only 14% of executives said their companies expect to lower spending in 2023.

The rebound in crude oil prices occurred after the invasion of Ukraine by Russia, Moscow's plan to lower its output of crude oil due to the price cap instituted by the G7 countries on its exports and OPEC+ countries maintaning its production cuts.

Exploration and production companies said they expect the price of West Texas Intermediate or WTI, the U.S. benchmark for oil prices, on average to be priced at $73 a barrel.

The higher crude oil price was one factor used for determining the budget for capital expenditures next year. The median price of oil was $75 per barrel.

In 2022, executives estimated that the price of oil would sell for $64 a barrel. 

Crude oil prices have been trading lower for several years. In 2019 and 2020, oil company executives priced oil at $54 a barrel and lowered it to $44 a barrel in 2021.

Oil companies expect to generate more revenue from higher oil prices next year.

"Most executives expect prices for their firm’s key inputs to rise in 2023 compared with 2022," according to the report from the Dallas Fed. "Fifty-eight percent of executives said they expect prices for key inputs to increase slightly, while an additional 10 percent anticipate a significant increase. Twenty-seven percent expect prices in 2023 to remain close to 2022 levels. Only 4 percent expect reductions in input prices in 2023."

Crude oil prices rose on Dec. 30 by 0.83% to $79.05 a barrel for WTI while Brent crude oil, the international benchmark, increased by 1.11% to $84.39.

Both WTI and Brent prices have been volatile in 2022 as the impact of the global pandemic continued. Prices have dropped this week due to concerns that increasing covid cases will shrink demand in China, the No. 1 oil importing country.

E&P Companies Increased Production in Q4 2022

Oil and natural gas production grew at a slightly slower pace during the fourth quarter compared with the third quarter, according to executives at exploration and production companies. The oil production index fell to 25.8 during the fourth quarter from 31.7 in the third quarter. 

The business activity index, which is a measure of conditions facing energy companies in the Eleventh District, which includes Texas, northern Louisiana and southern New Mexico, declined to 30.3 in the fourth quarter from 46.0 in the third quarter. 

"This suggests the pace of expansion decelerated but remained solid as the business activity index stayed above the series average," the Dallas Fed said in its report.

Supply chain bottlenecks persist although the delays in receiving materials and equipment has declined.

The supplier delivery time index fell to 14.4 in the fourth quarter from 28.4 during the third quarter. 

By the end of 2023, executives said crude oil prices are expected to rise to $84 per barrel.

Gasoline Prices to Rise Again

The recent gains for crude oil will impact gasoline prices for consumers at the pump.

Drivers should anticipate gasoline prices to start to increase moderately by 20 to 30 cents a gallon if they are currently paying $2.50 a gallon or less, said Patrick De Haan, head of petroleum analysis at GasBuddy, a Boston-based provider of retail fuel pricing information and data.

Prices will gain by 10 to 25 cents a gallon for drivers living in areas where gasoline costs $2.50 to $2.75 a gallon, while stations selling gasoline for $3 a gallon could soon increase prices by 5 to 10 cents per gallon, he said.