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Despite falling oil prices, a Dallas Fed report surveying oil and gas executives shows activity in the oil and gas sector expanded at a robust clip in the third quarter, suggesting the pace of expansion remains solid even after a slight slowdown.
The Business Activity Index looks at the broadest measure of conditions facing Eleventh District energy firms.
The Dallas Fed also noted that costs continued to increase for a seventh straight quarter, with the indexes now near historical highs. Among oilfield services firms, the index for input costs remains high but has fallen below the record high of 83.9. Virtually all of the 58 responding oilfield services firms reported higher input costs.
Among E&P firms, the index for “finding and development” costs fell slightly to 64.7 compared to 70.6 in the previous quarter. Additionally, the index for lease operating expenses was 70.2, slightly lower than 74.1 recorded in the previous quarter.
The majority of U.S. oil and gas companies have kept spending low or increased capex slightly despite high commodity prices, preferring to return excess cash flow to investors in the form of share buybacks and dividends.
According to data from Bernstein Research, the seven supermajors–including ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX), BP (NYSE: BP) and Shell (NYSE: SHEL)--are poised to return $38 billion to shareholders through buyback programmes this year, with investment bank RBC Capital Markets putting the total figure even higher, at $41bn.
In 2014, when oil was trading over $100/barrel, we only saw $21 billion in buybacks. This year’s figure rivals that of 2008. Big Oil’s capex and production have remained mostly flat despite reporting record second-quarter profits.
By Alex Kimani for Oilprice.com
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Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com.