Dallas Fed Energy Survey: Outlook modestly improves amid wait-and-see stance regarding activity; Breakevens increase

DALLAS—Oil and gas activity showed essentially no growth in first quarter 2024, 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, essentially unchanged from the last survey.
“The first quarter was a quiet one, with business activity and employment in the oil and gas sector showing little growth compared to last quarter,” said Michael Plante, Dallas Fed senior research economist and advisor. [download audio clip]

Key takeaways:

• The company outlook index jumped more than 20 points, rising to 12 from last quarter’s -12.4 reading. The positive index points to a modestly improved outlook for the sector.
• The oil production index was -4.1 this quarter, a decline of 9.4 points. The small negative value suggests production declined slightly compared to last quarter.
• Survey respondents reported a decline in natural gas production. The natural gas production index dropped more than 30 points to -17.
• Employment remained close to last quarter’s level. The employment index was 3.4, down slightly from 4.2 in the fourth quarter of 2023. Employee hours increased slightly, with its index at 6.9.
• The wages and benefits index increased from 21.2 last quarter to 32.8. The reading means wages and benefits grew at a faster pace than last quarter.

Price Expectations the Focus of New Survey Questions

Starting this quarter, the Dallas Fed Energy Survey will ask participants their outlook for oil and natural gas prices over six-month, one-year, two-year and five-year horizons. The results will be reported in charts that show the average, high and low responses for each horizon. Key takeaways from this quarter are:

• Respondents, on average, expect a WTI oil price of $79 six months ahead. The highest response was $90 while the lowest was $65.
• The averages were $81, $83 and $90 for the one-, two- and five-year outlooks, respectively. 
• Expectations for Henry Hub natural gas prices six months ahead averaged about $2.21. Responses ranged from $1.50 to $4.
• The average responses increased to roughly $2.64, $3.18 and $3.94 over the one-, two- and five-year horizons.

Breakeven Prices Increase; Smaller Firms Report Higher Breakevens

“Average breakeven prices for profitably drilling a new well increased just a little bit compared to last year. Across all responses, this year’s average was $64 per barrel, up from $62. The average was $58 for larger firms but was $67 for smaller companies,” Plante said. [download audio clip]

Additional takeaways from the special questions:

• The average price needed to cover operating expenses for existing wells was $39 per barrel, a slight increase from last year’s survey.
• A majority of firms primarily focused on the production of natural gas expect the recent pause in approval of LNG export facilities to affect their production levels five years from now compared to before the pause. Forty-eight percent slightly lowered their expectations for their natural gas production while 24 percent significantly lowered their expectations.
• Executives at support service firms who note their firm has a sizeable number of customers primarily focused on natural gas generally expect negative impacts of the pause on the demand for their firm’s services. Thirty-three percent of executives selected “slightly lower,” and an additional 24 percent of executives selected “significantly lower.” Thirty-eight percent expect no impact while a small percent expected positive impacts.
• Most E&P firms expect the methane charge in the Inflation Reduction Act to have a negative impact on their firm, with 46 percent selecting slightly negative and 34 percent reporting it will have a significantly negative impact. Responses among support service firms were more varied, with 47 percent expecting a negative impact (slight or significant) but another 41 percent reporting they expect no impact while 11 percent expect slightly positive impacts.
• Most executives expect the number of employees to remain the same or increase slightly when comparing December 2024 to December 2023. The most selected response was “remain the same” at 55 percent followed by 30 percent who selected “increase slightly.” Eleven percent chose “decrease slightly,” and only 1 percent “decrease significantly.”

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 December 13–21, 2024, and 147 energy firms responded. Of the respondents, 97 were exploration and production firms, and 50 were oilfield services firms. For more information, visit 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