Dallas Fed: US 11th District oil, gas activity ‘growing at a rapid clip’

March 29, 2017
The Federal Reserve Bank of Dallas’ quarterly survey of oil and gas industry executives in Texas, southern New Mexico, and northern Louisiana showed continued growth in business activity to begin the year.

The Federal Reserve Bank of Dallas’ quarterly survey of oil and gas industry executives in Texas, southern New Mexico, and northern Louisiana showed continued growth in business activity to begin the year.

The business activity index—the survey’s broadest measure of conditions among district energy firms—increased during the first quarter to 41.8 from last quarter’s 40.1 reading. The Dallas Fed notes positive readings in the survey generally indicate expansion, while readings below zero generally indicate contraction.

“Activity levels in the oil and gas sector continued growing at a rapid clip this quarter and nearly all survey measures pointed to further expansion,” said Michael D. Plante, Dallas Fed senior economist. “Outlooks remain positive, especially among oil field services firms.”

The survey samples Eleventh Federal Reserve District oil and gas companies, many of which have national and global operations.

In a series of special questions, respondents indicated that average breakeven prices needed to profitably drill a new well have fallen to a range of $46-55/bbl depending on the region.

“Breakeven prices, on average, are down about 6% since last year, reflecting improved efficiencies and cost-cutting measures,” said Plante. “Prices needed to drill new wells in the Permian basin, SCOOP-STACK, and Eagle Ford are below $50/bbl on average. As a result, it’s no surprise that these regions continue to attract new rigs and capital week after week. The Midland basin of the Permian had the lowest average of all areas, coming in at $46/bbl.”

Exploration and production firms reported oil and gas production increased for the second quarter in a row. The oil production index rose to 13.1, while the gas production index advanced to 17.6, suggesting that oil and gas production is rising at an accelerated rate.

Outlooks for 6 months out continued to improve, especially for oil field services firms. Nearly 70% of services firms reported an improved outlook, while 50% of E&P firms reported an improved outlook. Capital expenditures continued to increase in the first quarter, and most E&P firms upped their expectations of 2018 capital spending.

Despite recent oil-price declines, on average, respondents expect West Texas Intermediate oil prices to climb to $53.49/bbl by yearend.

Survey respondents were also given an opportunity to provide comments on the outlook for the Permian basin. Responses varied, with some expressing that production would increase into the foreseeable future, others commenting that production would plateau, and a few noting that it would be tough to maintain current levels.

Data for the survey were collected from 153 energy firms Mar. 15–23. Of the respondents, 78 were E&P firms and 75 were oil field services firms.