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Dallas Fed Energy Survey: Outlooks improve amidst modest growth in business activity

DALLAS—Oil and gas activity grew modestly in third 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 10.9, up from 0 in the second quarter. E&P firms reported a modest increase in business activity that was partially offset by a slight contraction in activity among support service firms.

“Sentiment improved in the industry this quarter on the back of rising oil prices, and business activity managed to grow modestly,” said Michael Plante, Dallas Fed senior research economist and advisor. “With that said, firms continued to report rising costs and oilfield service firms reported a deterioration in some key indicators.” [download audio clip]

Key takeaways:

  • The company outlook index jumped 45 points to reach 36.0 this quarter. The positive reading means more firms than not reported an improved outlook relative to last quarter.
  • Oil and natural gas production increased at a faster pace than last quarter.
  • Employment remained close to last quarter’s level. The employment index was 5.5, down from 13.1 in the second quarter.
  • Input and labor costs continued to rise, although the pace of increases moderated. The wages and benefits index was 24.5 this quarter vs. 34.5 last quarter; the input costs index fell 8 points to 33.4; the index for finding and development costs rose slightly to 18.3 vs. 14.9 last quarter; the lease operating expenses index was roughly unchanged at 25.6 this quarter.

Mixed opinions on the outlook for drilling and completion costs

“A good number of executives expect drilling and completions costs to be higher in 2024 than in 2023. However, that opinion was much more prevalent among smaller E&P firms, where two-thirds of respondents expect higher costs.  At larger E&P firms, only 40 percent expect higher costs,” Plante said. [download audio clip]

Additional takeaways from the special questions:

  • Looking over the next five years, two-thirds of executives expect the energy transition to increase the price of oil. One-third expect a slight increase while an additional one-third expect a significant increase. Twenty-five percent expect no impact while 9 percent expect a decrease.
  • A slim majority of executives expect global oil consumption in 2050 to increase relative to current levels, with 28 percent expecting a slight increase and 25 percent expecting a significant increase. Fifteen percent reported they expect no change while 25 percent expect a slight decrease. Only 8 percent expect a significant decrease.
  • Among companies that have drilled or completed a horizontal well in the Permian Basin in the past two years, 45 percent reported that the lead time to interconnect new well pads to the grid was about the same as one year ago. Another 26 percent reported a slight increase while 19 percent reported a significant increase. A small minority, roughly 10 percent, reported a decrease.
  • Among companies that have drilled or completed a horizontal well in the Permian Basin in the past two years, 30 percent of respondents reported that current lead times to interconnect new well pads to the grid had no impact on their operations. About 43 percent of respondents reported those lead times led to added financial costs; 30 percents reported added constraints on meeting emissions targets while another 30 percent reported those lead times were a minor constraint on activity.

Executives at oil and gas support services firms were asked which sector would most compete with their firm when it comes to hiring and retaining employees over the next five years. The most selected response was the service sector (32 percent) while the second most selected response was the construction sector (26 percent). The renewables sector was selected by 15 percent; manufacturing by 9 percent; transportation and warehousing by 6 percent; and other sectors by 12 percent.

Most executives (84 percent) note they expect the number of U.S. oil rigs six months from now to be near current levels. Fourteen percent said they anticipate the number of U.S. oil rigs drilling six months from now to be much higher, while only 1 percent of executives note they expect it to be much lower.

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 September 13–21, 2023, and 147 energy firms responded. Of the respondents, 98 were exploration and production firms, and 49 were oilfield services firms.

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