The following is a news release from the Federal Reserve Bank of Dallas:
Energy sector activity maintained its strong momentum in third quarter 2018, according to executives responding to the Federal Reserve Bank of Dallas Energy Survey. However, respondents said pipeline constraints, steel tariffs and oil price differentials could have negative effects on their business.
“Overall momentum remained relatively strong in the oil and gas sector in the third quarter of this year. However, responses from support service firms point to a modest deceleration in that part of the sector, with somewhat slower growth in activity and employment than last quarter, along with a bit more uncertainty about their outlook.”
“Survey respondents noted continuing issues in the Permian Basin regarding pipeline capacity and oil price differentials. A large majority of respondents think pipeline capacity won’t be sufficient until the last quarter of 2019 or later, and about 70 percent believe price differentials—oil is currently selling at a noticeable discount in the Permian—will have a slightly negative impact on oil production in the area over the next six months.”
The business activity index—the survey’s broadest measure of conditions among Eleventh Federal Reserve District energy firms—dipped very slightly from 44.5 in the second quarter to 43.3 in the third but remained near the highest level since the survey began. The business activity index for oilfield services firms fell from 54.2 to 45.9, suggesting a slight deceleration in growth for those firms. Meanwhile, the business activity index for exploration and production (E&P) firms rose from 37.2 to 41.8.
Positive readings generally indicate expansion, while readings below zero generally indicate contraction. Almost all indexes in the latest survey reflected expansion on a quarterly basis.
This quarter, respondents were asked special questions on pipeline constraints and the impact of crude oil price differentials in the Permian, the impact of steel tariffs, and supply and demand expectations for the global oil market in 2019.
Survey highlights include:
Oil and gas production increased for an eighth straight quarter: The oil production index moved down from 39.0 in the second quarter to 34.8 in the third, which suggests crude production rose at a slightly slower pace. Meanwhile, the natural gas production index edged up from 33.4 to 35.5, its highest level since the survey began.
Employment grew at a slower pace. The employment index for services fell sharply from 44.1 to 31.7. The hours worked index for services also fell from 50.8 to 41.0. Meanwhile, the employment index for E&P firms increased from 11.6 to 17.4, the highest level since the survey began. The aggregate wages and benefits index remained positive but fell from 27.9 to 23.5.
Costs continued to rise. Utilization of equipment by oilfield services firms slightly increased in the third quarter, with the corresponding index at 44.8, up three points from the second quarter. Input costs on the services side continued rising as the index jumped from 36.3 to 46.6. The index of prices received for oilfield services remained unchanged at 23.2.
Outlooks remained positive but uncertainty increased. The company outlook index posted a 10th consecutive positive reading and edged up one point to 46.4 in the third quarter. The uncertainty index rose 10 points to 8.8, suggesting that uncertainty regarding firms’ outlooks increased this quarter. This increase was particularly prominent among oilfield services firms, where the outlook uncertainty index jumped nearly 22 points to 14.7.
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 September 12–20, and 171 energy firms responded to the survey. Of the respondents, 110 were exploration and production firms and 61 were oilfield services firms.
(News release from the Federal Reserve Bank of Dallas)