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Feds: Oil/Gas Production Strong, Permian a 'Bright Spot' for Oil

In the latest issue of its Beige Book, the Federal Reserve Board (FRB) said energy demand and production remained strong across the country, with natural gas production on the rise in three of its 12 districts, onshore and offshore oil drilling up in another three, and the Permian Basin a "bright spot" for oil production growth in 2014.

According to the FRB, gas production was "stable at a high level" in the Cleveland District -- an area that includes Ohio, western Pennsylvania and eastern Kentucky, thereby comprising large portions of the Marcellus and Utica shales.

"The number of drilling rigs increased across the [Cleveland] District since our last report," the FRB said. "Wellhead prices for natural gas rose slightly, while oil prices declined. No change was reported in the cost of production equipment and materials."

Gas production also rose slightly in the Richmond and San Francisco districts, the former of which includes Marcellus and Utica heavyweight West Virginia. "A West Virginia contact stated that the industry continued to grow in all facets of production," the FRB said. "Growth in natural gas was also said to be helping other businesses in the region."

In the Minneapolis District, the FRB said gas production was "mixed," on the grounds that "late December oil and gas exploration activity increased in North Dakota [but] decreased in Montana from a month earlier."

Oil drilling was described as "robust" in the Atlanta, Dallas and Kansas City districts, with "activity both inland and offshore, despite rising costs to transport crude oil along the Gulf Coast." The FRB added that exploration in the Gulf of Mexico (GOM) "has been bolstered by the completion of pipeline infrastructure projects."

In the Dallas District -- which includes Texas, southern New Mexico and northern Louisiana, and therefore the bulk of the Barnett, Eagle Ford and Haynesville-Bossier shales and the Permian Basin -- the FRB said "demand for oilfield services increased slightly over the last six weeks.

"Drilling activity in Texas was particularly strong, both inland and offshore, according to respondents. Shale-driven activity was heating up in the Permian Basin, and that play is a bright spot for growth in 2014 for North America. Contacts expect 2014 energy activity to be better than 2013 but not as good as 2012."

Meanwhile, in the Kansas City District, the FRB said energy activity rose "modestly" in late November and December. The district includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, western Missouri and northern New Mexico, and includes the Niobrara and Woodford shales, as well as the Denver-Julesburg, Piceance and San Juan basins.

"Contacts indicated greater drilling and business activity," the FRB said. "Capital expenditures in the energy sector also increased modestly. Hiring by contacts in the sector grew at a stronger pace compared to the prior survey period. The number of oil rigs in district states increased slightly. Natural gas prices increased during the survey period, but were expected to decline in the coming months. Oil prices also increased slightly and were anticipated to hold steady."

In the Atlanta District -- Alabama, Florida, Georgia, southern Louisiana, southern Mississippi and eastern Tennessee -- the FRB said its contacts had reported that "capacity utilization in the energy industry remained near historic highs.

"Deepwater oil exploration in the GOM picked up, bolstered by the completion of recent pipeline infrastructure projects. Contacts noted that costs to transport domestic crude oil to refineries along the Gulf Coast via land or barge continued to rise. However, the outlook for demand, pricing, and productivity for the industry was optimistic on the whole for the coming year."

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