Dallas Fed: U.S. Oil Production Growth is slowing
Posted: Wed Jul 03, 2019 8:29 am
DALLAS (NEWS RELEASE) – The following is a news release from the Federal Reserve Bank of Dallas dated June 26, 2019:
Energy sector activity was flat in the second quarter after three years of growth, according to executives responding to the 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—fell to -0.6 in the second quarter. Positive readings generally indicate expansion, while readings below zero generally indicate contraction.
The near-zero reading indicates activity levels were largely unchanged from the prior quarter. Exploration and production (E&P) and oilfield services firms drove the decline.
“Results from this quarter’s survey indicate a further slowdown in the oil and gas sector, with employment and business activity essentially unchanged from last quarter,” said Michael Plante, Dallas Fed senior research economist. “Increasing pessimism and a surge of uncertainty suggest a potentially challenging near-term outlook, especially for oilfield service firms.”
Oil and gas production increased but at a slightly lower rate of growth, according to E&P firm executives. The oil production index edged down from 21.1 in the first quarter to 17.4 in the second quarter. The natural gas production index also declined to 13.4.
The index for capital expenditures fell from 5.0 in the first quarter to -6.1 in the second quarter, indicating a slight reduction in capital spending among E&P firms.
For this quarter’s survey, executives responded to a series of special questions about capital spending plan changes for 2019, cost inflation for completion services, and initiatives undertaken regarding water usage.
“Many firms are under pressure to maintain capital discipline for various reasons, and we asked a special question to see how budgets for 2019 may have been revised since the start of the year. By and large, companies are maintaining budget discipline, with most reporting either no change or slight adjustments up or down,” Plante said.
Other survey highlights include:
Oilfield services firms saw operating margins decline. The equipment utilization index fell 13 points to 3.4, and the operating margins index dropped from -6.6 to -32.8 in the second quarter. Input costs rose, with the index inching higher, from 25.0 to 27.1. At the same time, the prices received for services index dipped further into negative territory, from -1.7 to -12.1.
Employment index drops. The aggregate employment index dropped to -2.5 from 6.0, suggesting a turnabout for hiring in the quarter. Meanwhile, the aggregate employee hours worked index edged down from 9.7 to 3.1.
Executives were more pessimistic about future conditions. The company outlook index fell 28 points to -4.5. Among oilfield services firms, the index slumped 38 points to -15.7. The dimming outlooks coincided with a surge in uncertainty, as the aggregate uncertainty index jumped 31 points to 50, the highest level since the index was introduced in 2017.
Expectations for oil and gas prices are slightly lower. On average, respondents expect West Texas Intermediate (WTI) oil prices will be $57.14 per barrel by year-end 2019 and Henry Hub natural gas prices to be $2.67 per million British thermal units (MMBtu). This is lower than expectations from the first-quarter survey, in which respondents expected WTI oil prices to be $60.19 per barrel by year-end 2019 and Henry Hub natural gas prices to be $2.96 per MMBtu. For reference, WTI spot prices averaged $53.20 per barrel during the survey collection period, and Henry Hub spot prices averaged $2.42 per MMBtu.
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 June 12–20, and 161 energy firms responded to the survey. Of the respondents, 101 were E&P firms and 60 were oilfield services firms.
Energy sector activity was flat in the second quarter after three years of growth, according to executives responding to the 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—fell to -0.6 in the second quarter. Positive readings generally indicate expansion, while readings below zero generally indicate contraction.
The near-zero reading indicates activity levels were largely unchanged from the prior quarter. Exploration and production (E&P) and oilfield services firms drove the decline.
“Results from this quarter’s survey indicate a further slowdown in the oil and gas sector, with employment and business activity essentially unchanged from last quarter,” said Michael Plante, Dallas Fed senior research economist. “Increasing pessimism and a surge of uncertainty suggest a potentially challenging near-term outlook, especially for oilfield service firms.”
Oil and gas production increased but at a slightly lower rate of growth, according to E&P firm executives. The oil production index edged down from 21.1 in the first quarter to 17.4 in the second quarter. The natural gas production index also declined to 13.4.
The index for capital expenditures fell from 5.0 in the first quarter to -6.1 in the second quarter, indicating a slight reduction in capital spending among E&P firms.
For this quarter’s survey, executives responded to a series of special questions about capital spending plan changes for 2019, cost inflation for completion services, and initiatives undertaken regarding water usage.
“Many firms are under pressure to maintain capital discipline for various reasons, and we asked a special question to see how budgets for 2019 may have been revised since the start of the year. By and large, companies are maintaining budget discipline, with most reporting either no change or slight adjustments up or down,” Plante said.
Other survey highlights include:
Oilfield services firms saw operating margins decline. The equipment utilization index fell 13 points to 3.4, and the operating margins index dropped from -6.6 to -32.8 in the second quarter. Input costs rose, with the index inching higher, from 25.0 to 27.1. At the same time, the prices received for services index dipped further into negative territory, from -1.7 to -12.1.
Employment index drops. The aggregate employment index dropped to -2.5 from 6.0, suggesting a turnabout for hiring in the quarter. Meanwhile, the aggregate employee hours worked index edged down from 9.7 to 3.1.
Executives were more pessimistic about future conditions. The company outlook index fell 28 points to -4.5. Among oilfield services firms, the index slumped 38 points to -15.7. The dimming outlooks coincided with a surge in uncertainty, as the aggregate uncertainty index jumped 31 points to 50, the highest level since the index was introduced in 2017.
Expectations for oil and gas prices are slightly lower. On average, respondents expect West Texas Intermediate (WTI) oil prices will be $57.14 per barrel by year-end 2019 and Henry Hub natural gas prices to be $2.67 per million British thermal units (MMBtu). This is lower than expectations from the first-quarter survey, in which respondents expected WTI oil prices to be $60.19 per barrel by year-end 2019 and Henry Hub natural gas prices to be $2.96 per MMBtu. For reference, WTI spot prices averaged $53.20 per barrel during the survey collection period, and Henry Hub spot prices averaged $2.42 per MMBtu.
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 June 12–20, and 161 energy firms responded to the survey. Of the respondents, 101 were E&P firms and 60 were oilfield services firms.