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Momentum Builds in the Oil Patch, Says Dallas Fed Energy Survey

For Immediate Release: Mar. 29, 2017

Nearly all survey measures reflected expansion; breakeven prices for new drilling decline in Permian Basin, other regions, according to respondents

DALLAS—Oil and gas business activity continued to increase in the first quarter, according to executives responding to the quarterly Federal Reserve Bank of Dallas Energy Survey.

The business activity index—the survey’s broadest measure of conditions among Eleventh Federal Reserve District energy firms—rose slightly to 41.8 from last quarter’s 40.1 reading. Positive readings in the survey generally indicate expansion, while readings below zero generally indicate contraction.

“Activity levels in the oil and gas sector continued growing at a rapid clip this quarter and nearly all survey measures pointed to further expansion,” said Dallas Fed senior economist Michael D. Plante. “Outlooks remain positive, especially among oilfield services firms.”

In a series of special questions, respondents indicated that the breakeven prices needed to profitably drill a new well have fallen and averages now range from $46 to $55 per barrel depending on the region.

“Breakeven prices, on average, are down about 6 percent since last year, reflecting improved efficiencies and cost-cutting measures,” said Plante. “Prices needed to drill new wells in the Permian Basin, SCOOP/STACK and Eagle Ford are below $50 per barrel on average. As a result, it’s no surprise that these regions continue to attract new rigs and capital week after week. The Midland Basin of the Permian had the lowest average of all areas, coming in at $46 per barrel.”

The survey samples oil and gas companies headquartered in the Eleventh Federal Reserve District—Texas, southern New Mexico and northern Louisiana—many of which have national and global operations.

Exploration and production (E&P) firms reported oil and natural gas production increased for the second quarter in a row. The oil production index rose to 13.1, and the natural gas production index advanced to 17.6; this suggests that oil and gas production is rising at an accelerated rate.

Outlooks six months out continued to improve, especially for oilfield services firms. Nearly 70 percent of services firms reported an improved outlook, while 50 percent of E&P firms reported an improved outlook. Capital expenditures continued to increase in the first quarter, and most E&P firms upped their expectations of 2018 capital spending.

Despite recent oil price declines, on average, respondents expect West Texas Intermediate (WTI) oil prices to climb to $53.49 per barrel by year-end.

Survey respondents were also given an opportunity to provide comments on the outlook for the Permian Basin. Responses varied, with some expressing that production would increase into the foreseeable future, others commenting that production would plateau, and a few noting that it would be tough to maintain current levels.

Data were collected Mar. 15–23, and 153 energy firms responded to the survey. Of the respondents, 78 were E&P firms and 75 were oilfield services firms.

Next release: June 28.

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Media contact:
Jennifer Chamberlain
Federal Reserve Bank of Dallas
Phone: (214) 922-6748
E-mail: jennifer.chamberlain@dal.frb.org