A pumpjack sits on the outskirts of town at dawn in the Permian Basin oil field in Midland, Texas. (Photo by Spencer Platt/Getty Images)
DALLAS (NEWS RELEASE) – The following is a news release from the Federal Reserve Bank of Dallas:
Energy sector activity declined significantly in the first quarter, according to executives responding to the Dallas Fed Energy Survey.
The business activity index—the survey’s broadest measure of conditions facing Eleventh District energy firms—plunged from -4.2 in the fourth quarter to -50.9 in the first, the lowest reading in the survey’s four-year history and indicative of significant contraction. Exploration and production (E&P) and oilfield services firms both saw large decreases.
“This quarter’s survey results were overwhelmingly negative, as recent events have weighed heavily on the industry,” said Michael Plante, Dallas Fed senior research economist. “Relative to last quarter, business activity levels plunged, firms cut capital spending and outlooks became extremely pessimistic.”
The oil production index plunged 51 points to -26.4, according to E&P executives. The natural gas production index also turned negative, from 15.6 to -21.2. Among oilfield services firms, all indexes pointed to worsening conditions.
In a series of special questions, firms were asked for the fifth year in a row about breakeven prices to profitably drill new wells and to cover operating expenses at existing wells.
“The average breakeven price for new wells was a little under $50, and current oil prices are well below almost all of the responses,” Plante said. “Likewise, based on the survey responses, many firms will find it difficult to cover operating expenses at current prices.”
The survey also queried industry executives about how the coronavirus outbreak has changed their firm’s outlook for certain key areas in 2020.
“A majority of firms have revised down their expectations for their firms’ oil production, capital expenditures and company outlook,” Plante said.
Other survey highlights include:
E&P firms slashed capital spending. The index for capital expenditures dropped from 9.1 in the fourth quarter to -49.0 in the first quarter. The index for the expected level of capital expenditures next year plummeted from 0.9 in the fourth quarter to -61.9 in the first quarter, indicating E&P firms also cut expectations for capital spending next year.
Conditions worsened for oilfield services firms. The equipment utilization index fell from -25.8 in the fourth quarter to -47.2 in the first. Input costs fell in the first quarter from 1.7 to -11.3. However, the index of prices received for services slid further into negative territory, from -24.5 to -37.7. The operating margins index also became more negative, from -39.7 to -50.0.
Employment contracted further. The aggregate employment index declined from -10.0 to -24.0. Additionally, the aggregate employee hours worked index fell from -7.7 to -32.1. The index for aggregate wages and benefits went negative for the first time since third quarter 2016 at -8.2, down from 8.2.
Company outlooks turned extremely pessimistic. The company outlook index plunged 77 points to -75.0 in the first quarter. The uncertainty index jumped 38 points to 63.8, pointing to heightened uncertainty regarding firms’ outlooks.
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 March 11–19, and 161 energy firms responded. Of the respondents, 107 were exploration and production firms and 54 were oilfield services firms.
Next release: June 24, 2020
(News release from the Federal Reserve Bank of Dallas)
