Dallas Fed survey: Spending outlook slides as cost pressures intensify
Exploration and production firms in the footprint of the Federal Reserve Bank of Dallas have given their capital spending plans a big haircut since early summer, citing cost pressures as the primary factor.
Responding to Fed researchers earlier this month, nearly 100 E&P executives based in Texas as well as parts of New Mexico and Louisiana said their overall level of activity has remained stable since the second quarter—when their capex outlook took a small step back. But the numbers of respondents who said they are cutting spending now and plan to also do so in 2026 have each jumped by about 10 points to 35-40%. For context, those numbers haven’t been this negative since the COVID-ravaged second quarter of 2020.
Input costs tell much of the story: A growing number of executives said finding and development costs as well as lease operating expenses have risen over the past 3 months. The Fed’s survey, which uses a diffusion index, now shows a 22-point gap on finding and development costs—33% said they climbed this summer but only 11% said they’ve slipped—and nearly 37 points on lease operating expenses. (A mere 3% said their spending on leases has shrunk since June.)
On the whole, those inputs led the survey’s overall E&P company outlook measure to fall to -20 from about -5 in late spring. As with capex intentions, that reading is this measure’s lowest since the spring of 2020.
“The previous administration vilified the industry, buried it in regulation and cheered the flight of capital under the environmental, social and governance banner,” one respondent told the Fed team about the state of affairs. “The current administration is finishing the job. Guided by a U.S. Department of Energy that tells them what they want to hear instead of hard facts, they operate with little understanding of shale economics.”
Costs will weigh more heavily
To that point: Fed researchers asked a special question about how much regulatory changes by the Trump White House have helped lower firms’ break-even costs for new wells. Among both smaller firms (those producing 10,000 b/d or less) and their large peers, more than 55% said the benefit has amounted to less than $1 b/d. Only 12% said they have been able to lower their break-evens by $3 or more. (Learn more about those answers and the rest of the survey.)
Production costs are set to increasingly weigh on companies in the years ahead, analysts at Enverus Intelligence Research (EIR) said this week. A big factor in that trend is that firms will need to increasingly develop more speculative locations—which will over time push up the marginal cost of new supply from its current level of around $70/bbl to $95 by the mid-2030s.
“As core shale oil inventory in the US depletes, the industry is entering a new era of higher costs and more complex development,” Alex Ljubojevic, a director at EIR, said. “This shift will reshape the cost curve and redefine investment strategies across the continent.”
About the Author
Geert 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.