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Dallas Fed Energy Survey: Growth in Activity Stalls amid Oil Price Decline

Firms enter 2019 with ‘heightened uncertainty and a bit of pessimism,’ economist says

For Immediate Release: January 3, 2019

DALLAS—Growth in the energy sector slowed significantly in the fourth quarter, according to executives responding to the 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—remained positive, but barely so, plunging from 43.3 in the third quarter to 2.3 in the fourth. Readings near zero indicate activity was largely unchanged from the prior quarter, a break from the 10-quarter-long trend of rising activity.

Positive readings generally indicate expansion, while readings below zero generally indicate contraction. The decrease in the fourth-quarter index was driven by both exploration and production (E&P) and oilfield services firms.

“Following a dramatic decline in oil prices, the oil and gas sector is entering the new year with heightened uncertainty and a bit of pessimism,” said Dallas Fed Senior Economist Michael D. Plante. “While activity remains at a high level, growth stalled in the fourth quarter, and survey respondents reported much greater uncertainty surrounding their outlook.”
Respondents were asked special questions on capital spending in 2019, operating margins for oilfield services firms, and E&P firms’ primary goals for the coming year.

“Lower oil prices are also affecting spending plans for 2019, with 53 percent of respondents reporting they have reduced planned capital spending due to the recent price decline,” Plante said. “Despite this, many still expect capital spending to be higher in 2019 than in 2018, of which about 37 percent expect a slight increase and 16 percent a significant increase.”

Survey highlights include:

Oil and gas production increased at a slower pace. The oil production index moved down from 34.8 in the third quarter to 29.1 in the fourth. The natural gas production index fell from 35.5 to 24.8.

Among oilfield services firms, equipment utilization rates and prices remained relatively flat. The index for utilization of equipment fell 43 points to 1.6. Input costs increased but at a slower pace as the index declined from 46.6 to 36.7. Meanwhile, the index of prices received fell sharply from 23.2 to zero.

Employment growth moderated but wage growth accelerated. The employment index for services fell sharply, from 31.7 to 17.5. For E&P firms, the employment index moved down from 17.4 to 11.5. The aggregate wages and benefits index advanced from 23.5 to 32.9.

Outlooks turned negative and uncertainty increased. The company outlook index posted its first negative reading since first quarter 2016, plunging 57 points to -10.2 in the fourth quarter. This drop was particularly prominent among oilfield services firms, where the company outlook slumped 64 points to -17.2. The uncertainty index jumped 34 points to 42.4. Almost 58 percent of firms reported greater uncertainty.

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

Data were collected Dec. 12–20, and 167 energy firms responded to the survey. Of the respondents, 104 were E&P firms and 63 were oilfield services firms.

Next release: March 27, 2019

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