DALLAS (NEWS RELEASE) – The following is a news release from the Federal Reserve Bank of Dallas:
Energy sector activity dipped again in the fourth quarter, according to 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— remained in negative territory but eased from -7.4 in the third quarter to 4.2 in the fourth, suggesting that the pace of contraction has lessened. Negative survey readings indicate contraction; those above zero suggest expansion.
Activity for oilfield services firms continued to decline, with their business activity index at ‑22.1. Meanwhile, the business activity index for exploration and production (E&P) firms indicated modest growth, rising from zero to 5.4.
“Survey responses pointed to a modest decline in overall activity levels in the oil and gas sector,” said Michael Plante, Dallas Fed senior research economist. “This was largely driven by oilfield support service firms, which reported falling equipment utilization, operating margins and employment since the last quarter.”
For this quarter’s survey, executives responded to a series of special questions about capital spending in 2020, the price of oil needed to cover firms’ capital spending plans next year and the main causes of flaring in the Permian Basin.
“Increased flaring of natural gas in the Permian Basin has received growing attention lately, and this quarter’s survey asked firms about what’s behind the increase,” Plante said. “The most frequently chosen response was a lack of pipelines to move growing volumes of natural gas from the area to commercial hubs.
“Looking ahead to next year’s capital spending plans, few firms expect to significantly increase expenditures, reflecting a mediocre price environment and greater attention to capital discipline,” Plante said. When asked about what West Texas Intermediate oil price firms are using for capital planning, $55 per barrel was cited most frequently.
Other survey highlights include:
E&P firms see production increase. The oil production index increased from 15.7 in the third quarter to 24.7 in the fourth. The natural gas production also advanced, from 6.5 to 15.6, suggesting a slightly faster pace of growth this quarter.
Conditions worsened for oilfield services firms. The equipment utilization index was largely unchanged at -25.8 in the fourth quarter. The index for input costs fell from 5.6 to 1.7, while the index of prices received for services slid from -18.5 to -24.5. Given flat input prices and lower selling prices, the operating margins index plummeted from -24.0 to -39.7.
Employment declined further. The aggregate employment index dipped from -8.0 to -10.0. Also, the aggregate employee hours worked index fell from -2.4 to -7.7, signaling a further drop in employee hours. The index for aggregate wages and benefits edged up from 6.2 to 8.2.
Company outlooks were mixed. The company outlook index for E&P firms increased from 7.6 to 15.4, while the company outlook index for oilfield services firms decreased from -14.8 to -22.4. While uncertainty remains elevated, slightly fewer firms noted rising uncertainty this quarter than last, and the aggregate index fell by 12 points to 26.
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 Dec. 11–19, and 170 energy firms responded. Of the respondents, 111 were exploration and production firms and 59 were oilfield services firms.
Next release: March 25, 2020
(News release from the Federal Reserve Bank of Dallas)