Oil and gas activity grows modestly as crude prices rally, says Dallas Fed Energy Survey
For Immediate Release: March 27, 2019
DALLAS—Energy sector activity grew modestly in first quarter 2019, 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—came in at 10.8 in the first quarter, up from 2.3 in the fourth quarter but well below the average level seen over the past few years. Oilfield services firms drove much of the increase.
Positive readings generally indicate expansion, while readings below zero generally indicate contraction.
“Activity modestly increased in the first quarter as higher oil prices provided support for the oil and gas sector’s outlook,” said Dallas Fed Senior Economist Michael D. Plante. “Notably, though, the increase in oil prices only partially offset the large decline that occurred in late 2018, and this likely restrained growth in activity levels in the first quarter.”
Oil and gas production increased for the 10th consecutive quarter, according to exploration and production (E&P) firm executives. However, the oil production index fell from 29.1 in the fourth quarter to 21.1 in the first quarter, indicating a slower rate of growth. The natural gas production index also slipped, from 24.8 to 16.7.
In a series of special questions, respondents were asked about West Texas Intermediate (WTI) breakeven prices by basin and expected changes in employee head counts.
“For the fourth consecutive year, E&P companies were asked what WTI price they need to profitably drill a new well,” Plante said. “The average breakeven price across E&P respondents was $50, down slightly from last year. The lowest average breakeven prices were once again found in parts of the Permian Basin, which, despite some recent cutbacks, continues to attract the lion’s share of activity in the United States.”
Average prices necessary to cover operating expenses across regions ranged from $27 to $37 per barrel—also slightly lower than in last year’s survey—with the average across the entire sample at approximately $33 per barrel, versus $35 per barrel last year.
Other survey highlights include:
Oilfield services firms saw equipment usage rise, operating margins narrow. The index for utilization of equipment jumped sharply to 16.4 in the first quarter. Input costs continued to increase but at a slower pace, with the index declining from 36.7 to 25.0. The index for operating margins ticked down to ‑6.6.
Outlooks improved. The company outlook index rebounded into positive territory this quarter, jumping 34 points to 23.3. The uncertainty index fell 24 points to 18.6.
Employment grew at a slower pace … The aggregate employment index dropped to 6.0 from 13.8. The aggregate employee hours worked index also edged down, from 12.1 to 9.7. The index for aggregate wages and benefits came in at 23.5, down from last quarter but still indicative of strong growth in wages and benefits.
… And respondents expect little change ahead. Forty-nine percent of executives expect the number of employees to remain close to 2018 levels. Thirty-nine percent of executives expect the number of employees to increase from 2018 levels, and only 13 percent expect the number of employees to decrease in 2019.
Price expectations for year-end 2019 were roughly in line with current prices. Respondents on average projected $60.19 per barrel. That compares with the $59.10 average seen during the survey collection period. Responses ranged from $43 to $76.
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 March 13–21, and 166 energy firms responded to the survey. Of the respondents, 104 were E&P firms and 62 were oilfield services firms.
Next release: June 26, 2019
Federal Reserve Bank of Dallas
Phone: (214) 922-6748