Dallas Fed Energy Survey: Business activity in oil and gas sector stalls in second quarter

DALLAS—Oil and gas activity was unchanged in second 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 exactly 0, down from 2.1 in the first quarter.

“Weak oil and gas prices along with high costs brought growth in oil and gas activity to a standstill in the second quarter, according to respondents of our latest energy survey,” said Michael Plante, Dallas Fed senior research economist and advisor. “The slowdown is negatively impacting oilfield support service firms, which reported declining utilization of equipment and lower operating margins.”[download audio clip]

Key takeaways:

• Oil and natural gas production continued growing but the pace of growth slowed relative to the last quarter.
• Both employment as well as wages and benefits increased, despite the stalling of overall business activity. The employment index was 13.1 this quarter vs. 14.3 last quarter, while the wages and benefits index came in at 34.5 vs. 43.6 in the first quarter.
• Costs continued to rise but the pace of those increases moderated visibly. The input cost index fell sharply to 41.2 from 61.6; the finding and development costs index plunged 31.9 points, coming in at 14.9 this quarter; the index for lease operating expenses declined from 37.6 to 26.
  
• On net, conditions deteriorated for support service firms this quarter. Utilization of equipment fell, inputs costs continued to rise, and operating margins declined.

Credit conditions have minor impact so far

“Most executives reported that tighter credit conditions since February of this year have had only slight to no impact on their firms so far. When asked about how tighter credit conditions might affect their business plans through the remainder of the year, it remained the case that most expect only minor impacts,” Plante said. [download audio clip]

Additional takeaways from the special questions:

• 60 percent of executives expect their drilling and completion costs per well to end the year higher than where they were at year-end 2022 while 28 percent expect them to be lower. Executives at small E&P firms were much more likely to report they expect their drilling and completion costs to increase while executives at large E&P firms were more likely to report they expect their costs to be lower.
• Among support service firms, 57 percent of executives expect the cost of their firm’s inputs, excluding labor, to be slightly higher at year-end 2023 compared to year-end 2022, while another 14 percent expect them to be significantly higher.
• A small majority of executives—57 percent—reported that global oil consumption has underperformed this year relative to what they expected before China announced its reopening in December 2022. Thirty percent reported consumption had met their expectations, while only 14 percent said it had overperformed.
• Only a small fraction of executives—22 percent—expect that artificial intelligence will replace some of their firm’s personnel over the next five years. Large E&P companies and support service firms were somewhat more likely to select that response compared to smaller E&P companies.

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 June 7–15, 2023, and 152 energy firms responded. Of the respondents, 101 were exploration and production firms, and 51 were oilfield services firms.

For more information, visit www.dallasfed.org.

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Media contact:
James Hoard
Federal Reserve Bank of Dallas
Phone: 214-922-5307
Email: james.hoard@dal.frb.org