Oil and gas

Energy sector activity declined in the third quarter, according to executives responding to the Federal Reserve Bank of Dallas Energy Survey.

The business activity index – the survey’s broadest measure of conditions facing Eleventh District energy firms – fell to -7.4 in the third quarter from -0.6 in the second quarter. Negative survey readings indicate contraction, while those above zero suggest expansion, according to a news release from the Dallas Fed.

Oil field services firms drove the decline, with their business activity index slumping to -21.8 from 6.6. Among oil field services firms, the equipment utilization index plummeted 27 points to -24.0 – its lowest reading since 2016. Meanwhile, the index of prices received for services fell further into negative territory, to -18.5 from -12.1.

“Conditions in the oil and gas sector deteriorated in the third quarter, with overall activity and employment declining modestly,” said Michael Plante, Dallas Fed senior research economist. “Oil field service firms were most affected, with a sharp drop in equipment utilization and operating margins. In general, the survey results suggest the second half of 2019 is going to be a tough one for the industry.”

For this quarter’s survey, executives responded to a series of special questions about constraints limiting current activity, the number of drilled but uncompleted wells (DUCs) and when U.S. oil rig counts will bottom out.

“When asked about what factors are restricting near-term growth in activity, 42% of respondents cited low oil and natural gas prices as the prime constraint,” Plante said. “Limited access to credit and capital, as well as investor pressure to generate free cash flow, were also mentioned as limiting factors.”

Other survey highlights include:

  • Oil and gas production increased. The oil production index was at 15.7 in the third quarter, according to exploration and production executives. The natural gas production index fell to 6.5 from 13.4, suggesting a slower pace of growth this quarter.
  • Employment declined and wage growth slowed. The aggregate employment index slid to -8.0 from -2.5. The hours worked index declined to -2.4 from 3.1, and the index for aggregate wages and benefits fell to 6.2 from 14.5.
  • Company outlooks remained unchanged overall. However, outlooks for oil field services firms remained negative at -14.8. While uncertainty continues to intensify, slightly fewer firms noted rising uncertainty this quarter than last, and the index fell 12 points to 38.

Half of executives think the Permian Basin DUC count is lower than the Energy Information Administration estimate. Among those who answered this question, 23% said their estimate was significantly lower and 27% said it was slightly lower. A total of 37% said their estimate is close to the EIA estimate, while the remaining respondents said it was higher. The issue of DUCs is important since they represent a potential source of new production that could be tapped by shale companies at a lower cost than drilling an entirely new well, according to the news release.

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.

Information was collected Sept. 11-19, and 163 energy firms responded. Of the respondents, 108 were exploration and production firms and 55 were oil field services firms.

You must be logged in to react.
Click any reaction to login.
0
0
0
0
0

Recommended for you

(0) comments

Welcome to the discussion.

Transparency. Your full name is required.
Keep it Clean. Please avoid obscene, vulgar, lewd, racist or sexually-oriented language.
PLEASE TURN OFF YOUR CAPS LOCK.
Don't Threaten. Threats of harming another person will not be tolerated.
Be Truthful. Don't knowingly lie about anyone or anything.
Be Nice. No racism, sexism or any sort of -ism that is degrading to another person.
Be Proactive. Use the 'Report' link on each comment to let us know of abusive posts.
Share with Us. We'd love to hear eyewitness accounts, the history behind an article. And receive photos, videos of what you see.
Don’t be a troll. Don’t be a troll. Don’t post inflammatory or off-topic messages, or personal attacks.

Thank you for Reading!

Please log in, or sign up for a new account and purchase a subscription to read or post comments.

To subscribe, click here. Already a subscriber? Click here.