Texas oil and gas activity strengthens further, says Dallas Fed Energy Survey
For Immediate Release: March 28, 2018
DALLAS—Energy sector activity continued to gain momentum in the first quarter, according to executives responding to the quarterly Federal Reserve Bank of Dallas Energy Survey.
The business activity index—the survey’s broadest measure of conditions among Eleventh Federal Reserve District energy firms—advanced from 38.1 in the fourth quarter to 40.7 in the first. The increase was driven by the oilfield services side of the industry.
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.
“Activity in the oil and gas sector grew vigorously in the first quarter, with our activity index coming in at its highest level since the first quarter of 2017,” said Dallas Fed Senior Economist Michael D. Plante. “The expansion in activity is leading to increased employment and is also pushing up wages and other costs for firms.”
In a series of special questions, respondents indicated that the breakeven prices needed to profitably drill a new well range from $47 to $55 per barrel, depending on the region.
“The average breakeven price across the entire sample rose to $52 this year, a 4 percent increase relative to last year’s average of $50,” Plante said. “As in past years, there was significant variation in individual responses, but major shale areas such as the Permian continue to have the lowest breakeven prices according to survey respondents.”
Average breakeven prices in the Permian Basin rose to $50 per barrel this year from $48 last year. Across regions, the vast majority of firms in the survey can profitably drill a new well at current prices; 88 percent of responses are below the West Texas Intermediate (WTI) spot price of $66 per barrel on March 23.
Other survey highlights include:
Oil and gas production rose for the sixth quarter in a row, according to executives at exploration and production (E&P) firms. The oil production index ticked up slightly from 33.7 in the fourth quarter to 34.3 in the first. Meanwhile, the natural gas production index edged down from 26.6 to 25.0.
Labor market indexes point to continued strength. Growth in jobs and wages was primarily driven by oilfield services firms. The employment index was 37.1 for services firms versus 9.0 for E&P firms. The employee hours indexes also showed a large gap: 41.9 for services firms versus 16.9 for E&P firms. The aggregate wages and benefits index advanced from 25.5 to 33.8. In the special questions responses, 51 percent of executives expect the number of employees to increase in 2018 from 2017 levels, while only 4 percent expect to decrease headcount.
Price pressures increased. Utilization of oilfield services firms’ equipment increased at a faster pace than in the fourth quarter, with the corresponding index at 40.4, up 11 points. The index of input costs jumped from 30.9 to 46.8. The index of prices received for oilfield services rose more modestly, from 22.6 to 27.9.
Respondents expect oil and gas prices to remain near current levels. On average, respondents expect WTI oil prices to be $63.07 per barrel by year-end 2018, with responses ranging from $45 to $77 per barrel. Respondents expect Henry Hub natural gas prices to end 2018 at $2.91 per million British thermal units (MMBtu). For reference, WTI spot prices averaged $62.72 per barrel and Henry Hub spot prices averaged $2.65 per MMBtu during the survey collection period.
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 March 14–22, and 140 energy firms responded to the survey. Of the respondents, 78 were exploration and production firms and 62 were oilfield services firms.
Next release: June 27, 2018
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Media contact:
Jennifer Chamberlain
Federal Reserve Bank of Dallas
Phone: (214) 922-6748
E-mail: jennifer.chamberlain@dal.frb.org