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Amid budding industry optimism, US natural gas production hit one-year high

Highlights

Output tops 93 Bcf/d, led by Haynesville growth

US rig count tops 500, highest since April 2020

Dallas Fed reports surge in business sentiment

Domestic gas production surged to a nearly 12-month high this week as rising optimism in the US oil and gas industry continues to fuel an expansion in drilling activity and upstream investment.

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Amid a surprisingly strong recovery from last month's historic freeze-off, output surpassed 93 Bcf/d recently, reaching its highest level since late March, S&P Global Platts Analytics data shows.

The sustained rebound in production this month can be attributed in large part to recent growth in the Haynesville shale, along with smaller gains from the Permian, the Bakken and the SCOOP/STACK.

In all four basins, many operators have significantly expanded their drilling footprint this quarter, likely signaling additional production growth in the months ahead.

In the Haynesville, the rig count briefly topped 50 in February, actually outnumbering the basin's pre-pandemic activity level. In the Permian, the addition of over 40 rigs this quarter has lifted the total there to an estimated 224 as of mid-March – its highest since April 2020. In the Bakken and the SCOOP/STACK rig counts have expanded to a total of 15 and 18, respectively, with the addition of three rigs to both basins – smaller, but still meaningful gains in percentage terms, recent data published by Enverus shows.

Industry optimism

According to the Dallas Fed, the ongoing expansion in activity and production reflects growing industry optimism this year. In its quarterly Energy Survey published March 24, the agency reported its highest "business activity index" reading in the survey's five-year history.

At 53.6, the index was up sharply compared with its fourth-quarter reading at 18.5, signaling an overwhelming improvement in overall sentiment among oil and gas executives in the Eleventh District.

Among those responding to the survey, nearly 46% said their firm had increased capital expenditures from fourth-quarter 2020, with only 15% reporting a decrease. Over 81% of respondents reported flat to higher oil and gas production during the quarter, while about 17% to 18% reported a decline.

Also notable were flat-to-lower lease operating expenses reported by nearly 90% of respondents – a signal that the recent increase in drilling activity has yet to trigger inflation in the oil field services industry.

In the first quarter, the oil price outlook also improved significantly, with those surveyed reporting an average anticipated WTI crude price at $61/b by year-end 2021 – up from a projected $50/b in the fourth quarter.

"Current building restrictions on government leases and fears around pipeline construction permits have increased our price projections," one anonymous survey respondent said.

Market outlook

In the Q2 forward oil market, traders are betting on price levels similar to those reported by survey respondents, with WTI barrels currently valued around $61.50/b for April, May and June delivery.

In the forward gas market, benchmark 2021 gas prices appear to have stabilized over the past week, after falling sharply from a mid-February high. At market settlement March 23, the Henry Hub 2021 curve settled at $2.66/MMBtu, S&P Global Platts most recently published data shows.