Dallas Fed survey: More than one in five firms plan to grow capex in 2027
The share of exploration and production (E&P) companies planning to add to their capital spending in 2027 versus this year has grown to 22% from 10% in June, a new Federal Reserve Bank of Dallas survey shows.
Of the more than 80 E&P leaders in Texas, northern Louisiana, and southern New Mexico who responded to the latest Dallas Fed Energy Survey earlier this month, a third said their oil production has increased over the past 3 months and only 1 in 8 said they’re pumping less oil. On the capex side, 46% said their spending this quarter was up from this year's second quarter. Both of those data points were down slightly from the Fed’s June poll.
What appears to be changing more substantially on the ground in the Permian basin, Eagle Ford, and other areas in the Dallas Fed’s footprint are expectations about 2027 spending. Only 5% of E&P leaders now expect they’ll trim capex next year while 73% said they’ll keep spending level. Three months ago, those figures were 10% and 81%, respectively.
That means 22% of executives now think their capex will climb in 2027 compared to less than 10% 3 months ago. And it suggests that production in the region will climb from here as producers look to take advantage of consistently high prices for their products—even if they’ve retreated from their recent highs.
Jon Costello, an analyst at HFI Research, said an industry response—with Texas firms in the vanguard—to higher prices similar to how it recovered starting in late 2016 would grow total US production more than 4% to about 14.4 million b/d.
“If production is moving toward that level, shale will have shown it can still respond to higher prices,” Costello wrote. “If it remains near last October’s record of just under 14.0 million barrels per day around year-end, I think we should begin changing how we think about the US oil industry.”
Cost and uncertainty remain tricky factors
That more E&P leaders in and adjacent to Texas aren’t slamming on the gas pedal also speaks to rising costs and continued uncertainty, mainly due to the Iran war. Dallas Fed researchers noted in their report that “all cost indexes were above their series averages, suggesting costs are growing at a faster-than-average pace.”
The Fed survey’s reading on uncertainty among E&Ps and services firms, meanwhile, didn’t change much from the second quarter but the bank’s analysts noted the producers’ responses reflected a significantly higher level of uncertainty. That also showed up in many of the comments researchers collected.
“It is very challenging to select a planning price or budgeting price,” one survey respondent said. “Companies must look at the steep backwardation and budget off of a $65 per barrel or $70 per barrel price while operating expenses per barrel and finding and development pricing is increasing quickly.”
For more details and data from the survey, click here.
About the Author
Geert De LombaerdeGeert De Lombaerde
Senior Editor
A native of Belgium, Geert De Lombaerde has more than two decades of business journalism experience and writes about markets and economic trends for Endeavor Business Media publications Healthcare Innovation, IndustryWeek, FleetOwner, Oil & Gas Journal and T&D World. With a degree in journalism from the University of Missouri, he began his reporting career at the Business Courier in Cincinnati and later was managing editor and editor of the Nashville Business Journal. Most recently, he oversaw the online and print products of the Nashville Post and reported primarily on Middle Tennessee’s finance sector as well as many of its publicly traded companies.