The oil and gas sector continued to strengthen during the first three months of this year in Texas, northern Louisiana and southeastern New Mexico, the Federal Reserve Bank’s Dallas arm said.
The Dallas Fed Energy Survey measures the business activity index quarterly, offering a broad measure of conditions facing Eleventh District energy firms. There were 140 energy firms responding to the latest survey, including 78 exploration and production (E&P) companies and 62 oilfield services (OFS) firms.
During 1Q2018, the index advanced to 40.7 from 38.1 in 4Q2017, driven by rising OFS activity. Positive readings in the survey generally indicate expansion, while readings below zero generally indicate contraction. Almost all indexes in the latest survey reflected expansion on a quarterly basis.
“Oil and gas production increased for the sixth quarter in a row, according to executives at E&P firms,” researchers said. “The oil production index ticked up slightly from 33.7 in the fourth quarter to 34.3 in the first. Meanwhile, the natural gas production index edged down from 26.6 to 25.0.”
OFS equipment utilization increased at a faster pace between January and March than in 4Q2018, with the corresponding index at 40.4, up 11 points. However, the index of input costs jumped to 46.8 from 30.9, “suggesting greater cost pressures.” The index of prices received for OFS also increased, albeit more modestly, to 27.9 from 22.6.
“Labor market indexes continue to point to rising employment and employee hours, with job growth primarily driven by OFS firms,” researchers said. “The employment index was 37.1 for services firms versus 9.0 for E&P firms.”
Employee hours indexes also showed a large gap: 41.9 for OFS firms versus 16.9 for E&Ps. The aggregate wages and benefits index advanced to 33.8 from 25.5, with most of the increase coming again from the OFS side of the industry.
Meanwhile, the company outlook index posted an eighth consecutive positive reading, but it was down nine points to 43.2 in the first quarter. Uncertainty regarding company outlooks was “roughly unchanged this quarter; the corresponding index came in near zero.”
On average, respondents expect West Texas Intermediate (WTI) oil prices to be $63.07/bbl by year-end 2018, with responses ranging from $45 to $77. Respondents expect Henry Hub natural gas prices to end 2018 at $2.91/MMBtu.
During the survey collection period from March 14-22, WTI spot prices averaged $62.72/bbl and Henry Hub spot averaged $2.65/MMBtu.
The Dallas Fed’s survey each quarter also includes special questions to gauge the outlook for the region.
One E&P executive cited concerns about President Trump’s recent steel tariffs, which would impose a 25% tax on imports. The uncertainty about the tariffs “is leading to uncertainty in cost outlook,” the executive said. “Longer term, the tariff has the potential to impact many facets of the industry and could create additional inflationary pressures while it is in place.”
Another executive said the outlook for junior E&Ps working in the Permian Basin “is dismal unless WTI crude oil prices stabilize at $70/bbl or higher.”
Reservations also were expressed by one executive about the federal tax reforms enacted late last year. “We are a pass-through business but cannot tell yet if the new rules and limitations will make any significant difference.”
On the OFS side, an executive highlighted how good business is going: “We are running at full capacity and may be hiring more support help.”
However, said another, “Even with the ever-so-modest recovery in the seismic space, I doubt we will see significant hiring in this part of the industry. We will ask our current teams to perform more functions as opposed to adding staff until the staff additions are absolutely necessary.”
© 2020 Natural Gas Intelligence. All rights reserved.
ISSN © 2577-9877 | ISSN © 1532-1266 | ISSN © 2158-8023 |