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Dallas Fed Energy Survey: Oil and gas firms report substantial slowdown in growth

March 29, 2023

DALLAS—Growth in oil and gas activity slowed substantially in first quarter 2023, according to oil and gas executives responding to the Federal Reserve Bank of Dallas Energy Survey.

The business activity index—the survey’s broadest measure of conditions facing Eleventh District energy firms—came in at 2.1, down almost 30 points from the previous quarter.

“Growth in the oil and gas sector slowed to a crawl in the first quarter, as firms’ faced increasing costs.  Our respondents also expressed a worsening view of the near-term outlook for the energy sector,” said Michael Plante, Dallas Fed senior research economist and advisor. [download audio clip]

Key takeaways:

  • Survey results point to growing pessimism. The company outlook index was a negative 14.1, a 27.2-point decline relative to the previous quarter.
  • Oil and natural production continued to increase, although at a slower pace compared with fourth quarter 2022, according to executives’ responses.
  • Costs continue to rise across the board but at a slightly slower pace relative to the previous quarter. The finding and development cost index was 46.8 versus 52.5; the index for lease operating expenses came at 37.6, down about 11 points from the previous quarter; the input costs index was 61.6 for the current quarter, relatively unchanged.

Cost inflation drives up breakeven prices

“Rising costs and other factors have increased breakeven prices to profitably drill new wells. The average breakeven price across all respondents was $62 a barrel, up more than 10 percent from the average last year. Despite the increase, most respondents can still profitably drill a new well at current prices,” Plante said. [download audio clip]

Additional takeaways from the special questions:

  • The breakeven price to cover operating expenses at existing wells also increased. The average response was $37 per barrel, up almost 9 percent from last year.
  • Across geographic areas, the average breakeven price to profitably drill a new well ranged from $56 in the Eagle Ford to $66 in areas of the Permian outside the Midland and Delaware Basins.
  • Many executives pointed to cost inflation and the health of the global economy as key factors that will most influence their company’s profitability this year.
  • Forty percent of respondents said the cyclical nature of the industry is the primary factor causing worker shortages in the oilfield. The second-most selected response—27 percent of executives—was the perception of limited career potential due to the energy transition.
  • Whereas the most selected response among E&P firms was for employment to “remain the same” in 2023, the most selected response of support service firms was for employment to “increase slightly” in 2023.

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

Data were collected March 15–23, 2023, and 147 energy firms responded. Of the respondents, 95 were exploration and production firms, and 52 were oilfield services firms.

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Media contact:
James Hoard
Federal Reserve Bank of Dallas
Phone: 214-922-5307