The oil and gas industry business activity compiled every 3 months by the Federal Reserve Bank of Dallas has turned up quarter over quarter for the first time since the spring of 2022. More growth may be on the way: Exploration and production (E&P) executives told the Fed’s researchers that they are adding to capital budgets and have ramped up spending plans for 2024.
Other top-level findings from the latest installment of the Dallas Fed Energy Survey: Boosted by higher prices, about 84% of industry executives in Texas and parts of New Mexico and Louisiana are maintaining or growing production this quarter, their overall outlook has jumped to its most positive level since mid-2022, and more than half of respondents think the year-end price for a barrel of West Texas Intermediate will be $85-95.
The optimism and price momentum is feeding into spending plans: The third-quarter survey’s highest single data point among E&P firms’ was their expected 2024 capex relative to this year’s. In June, nearly 27% of executives said they planned to boost their budgets next year (OGJ Online, June 22, 2023). But responses to the Fed’s survey last week showed that number has jumped to 49% while the number of firms planning to trim spending had fallen to 13%, nearly half its second-quarter reading.
Given the strong price trend for crude oil—futures prices have climbed nearly 40% since mid-year—that number could lead others to also add to spending plans, said one respondent.
“Capital discipline will be tested among operators if the oil price remains consistently over $90/bbl,” the executive said.
Executives answering the Fed’s survey aren’t sure that $90 price level will be held, though. Their average Dec. 31 target was $88/bbl, with responses ranging from $70 to $120. But the higher activity being reported and forecast looks set to keep costs at an elevated level: The third-quarter survey showed costs rising for the eleventh consecutive quarter and responses to the employee compensation, development costs, and lease operating expenses all remained firmly in ‘increasing’ territory.