Oil and natural gas activity in Texas, northern Louisiana and southern New Mexico increased during the second quarter, albeit at a slightly slower pace than early this year, according to the latest energy survey by the Dallas branch of the Federal Reserve Bank (Fed).

The Dallas Fed Energy Survey, issued on Wednesday, said the business activity index, the broadest measure of conditions facing Eleventh District energy firms, remained robust at 37.3, slightly below the 41.8 reading in 1Q2017.

The survey covers operators working in the most prolific play today, the Permian Basin, along with the Eagle Ford and Haynesville shales.

“Despite some deceleration, most other indexes also reflected expansion on a quarterly basis,” the survey said. “Responses among oilfield services (OFS) firms were particularly strong.”

Oil and gas production increased for the third quarter in a row, according to exploration and production (E&P) executives who responded to the survey.

The oil production index stood at 10.2, down from 13.1 in 1Q2017, while the natural gas production index declined seven points to 10.6. Results suggested that production rose at a slower pace than in the first quarter.

For OFS firms, the business activity index edged up to 49.3, its highest reading since the survey began in 1Q2016. Utilization of equipment increased, with the corresponding index sharply higher at 45.4 from 26.0 in 1Q2017.

Executives were asked how they were financing increased activity.

“Many executives (87 out of 115) noted that they are looking to use internal cash flow to finance increased activity,” the survey said. “External equity (public issuance or private equity) and bank financing were two other commonly cited sources of financing.”

Those surveyed also were asked when the global oil market may come into balance in light of the decision by the Organization of the Petroleum Exporting Countries (OPEC) to withhold some output until next March.

Most of the executives who responded, 67%, expect the oil market to come into balance in 2018 or sooner, with one-third suggesting it may be 2019 or beyond. Eleven percent see the market rebalancing by the second half of this year while 8% believe the market already is in balance or in deficit.

“So long as production growth exceeds demand growth, there is no potential for sustainable price escalation except in response to an event that challenges the status quo politically or militarily,” said one respondent. “The price increase in that context will only be sustainable so long as the event effects are continuing, literally or as a market perception. OPEC production cuts are becoming more and more symbolic in a market that has moved from one historically of perception to one of reality. ”My tank runneth over,’ and there is more in the pipeline.”

Measures of selling prices and input costs “suggested some pressure on margins” for OFS operators, according to the survey. The index of prices received for OFS fell sequentially to 9.1 from 18.3, while the index of input costs surged to 37.0 from 23.6.

“Labor market indexes point to rising employment, employee hours, and wages and benefits,” researchers said.

Growth in employment was driven primarily by OFS firms, with the index at 40.3 versus 5.7 for E&Ps. The aggregate wages and benefits index moved up again, to 22.8 from 17.1.

The company outlook index posted a fifth consecutive positive reading but fell 25 points to 20.3, according to the survey.

“Uncertainty regarding the outlook rose again. Over 46% of firms reported increased uncertainty about the future, up from 33.8% last quarter.”

On average, respondents expect Henry Hub natural gas prices will end the year at $3.01/MMBtu. Henry spot prices averaged $2.89/MMBtu during the survey collection period. West Texas Intermediate (WTI) is forecast to end 2017 averaging higher at $48.79/bbl, with responses ranging from $30 to $65/bb. WTI spot averaged $43.80/bbl during the collection period.

Said one respondent, “Basis differentials on gas assets are having a large impact on our realized prices. Uncertainty on crude prices is not currently affecting our results, but should prices maintain sub-$40, we would be affected.”

Data for the survey were collected June 14-22, with 138 firms responding. Of the respondents, 70 were E&Ps and 68 were OFS operators. In the survey, companies are asked whether business activity, employment, capital expenditures and other indicators increased, decreased or remained unchanged from the prior quarter and from a year ago.