Record costs slam drillers as oil output growth slows

America’s oil producers are boosting output at a slower place as record costs hammer the shale patch, according to a survey of industry executives.

Out of 47 responding companies that supply producers with everything from software to workers, just one reported lower input costs in the third quarter, according to a report released Wednesday by the Federal Reserve Bank of Dallas.

Hiring has become a big headache for oilfield service companies trying to meet increased demand from explorers. Of those reporting difficulties in attracting workers, 70% blamed it on a lack of qualified applicants. Wages are up 20%, and companies are poaching employees from competitors, according to an unidentified survey respondent.

“Labor is causing major problems,” the person said. “We are finding it difficult to increase prices to match our increase in costs.”

The outlook comes as a global energy crunch sends prices for oil, natural gas and power soaring, roiling everything from manufacturing to food production. U.S. drillers are keeping output in check as they respond to investor pressure to pay down debt and return cash to shareholders, adding to the inflationary pressure.

Of all the labor shortages that are wreaking havoc on the U.S. economy — from cashiers to chefs — few are as thorny or potentially as permanent as the one that has a grip on the oil sector. Thousands of roughnecks and engineers are wary of returning to jobs like the ones they lost when the pandemic sent the price of crude oil crashing last year.

For most of this year, oilfield service companies have mostly been able to pass along input costs to their clients in the form of higher service prices, but that’s also generally kept them from booking extra profits, Citigroup has said. Inflation could reach 12% or more by the end of this year for the sector in North America, analysts including Scott Gruber wrote in a June investor note.