Activity edges down and outlooks dim, Dallas Fed Energy Survey finds

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Oilfield service firms see falling equipment utilization

September 25, 2024

DALLAS-Oil and gas activity edged down in third quarter 2024, according to oil and gas 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-came in at -5.9, suggesting a small decline in overall activity since the last survey.

"Depressed natural gas prices in the Permian Basin and falling oil prices appear to have weighed on survey respondents this quarter. This was especially true for oilfield service firms, many of which reported declining activity levels," said Michael Plante, Dallas Fed senior research economist and advisor. [download audio clip]

Key takeaways:

• The business activity index was 0 for exploration and production firms but -18.1 for service firms, suggesting a drop in service firms' overall activity. The equipment utilization index of oilfield service firms also dropped sharply, falling from 10.9 in the second quarter to -20.9 in the third.
• The company outlook index turned negative in the third quarter, plunging 22 points to -12.1. The negative index points to a modestly deteriorating outlook for the sector.
• The oil production index was 7.9 this quarter, an increase of 7 points. This suggests a small increase in production this quarter.
• Survey respondents reported a modest decline in natural gas production, with the natural gas index coming in at -13.3.
• Employment remained close to last quarter's level. The employment index was 2.9. Employee hours decreased slightly, with its index at -2.3.

Permian Basin Firms Report Impacts from Low Natural Gas Prices in the Basin

"Natural gas prices in the Permian Basin were depressed by the delayed startup of a pipeline for most of the quarter. The impact on firms was varied, with some executives reporting impacts on production, as well as drilling and completions activity, with others reporting little impact on their operations," Plante said. [download audio clip]

Additional takeaways from the special questions :

• When asked about the impact of low Waha natural gas prices on their operations in the third quarter, about 35 percent of respondents reported having to curtail production, 26 percent reported delaying/deferring well drilling, and 9 percent reported delaying/deferring well completions.
• Most firms do not expect to ramp up completions activity after the Matterhorn pipeline comes online. Only 20 percent report they expect to do so.
• Many oilfield service firms were also impacted by low Waha Hub natural gas prices in the third quarter. Forty-seven percent said low prices had a slightly negative impact on their firm while 17 percent reported a significantly negative impact. The remainder reported no impact.
• A slight majority of firms plan to electrify their oilfield operations or have already done so. Eighteen percent report they are already fully electrified, 6 percent aim to fully electrify in the future, and 31 percent aim to partially electrify. The other 45 percent of respondents reported they do not plan to electrify their oilfield operations.
• Companies report different challenges to electrifying operations depending upon the location of their activities and whether they aim to electrify in the first place. Among firms with operations primarily located in the Permian Basin, the most selected response, chosen by 29 percent, was uncertainty about future access to the grid. The most selected response among firms whose operations are primarily located outside the Permian was that it was too expensive. Among firms not looking to electrify, regardless of location, 48 percent reported the main challenge was it was too expensive.
• Looking forward, few E&P firms expect their crude oil production to be constrained due to crude oil pipeline limitations in the Permian Basin at any time between now and the end of 2026. Only 8 percent reported they expected such constraints.

The survey samples oil and gas companies headquartered in the Eleventh Federal Reserve District, which includes Texas, southern New Mexico and northern Louisiana. Many have national and global operations.

Data were collected September 11-19, 2024, and 136 energy firms responded. Of the respondents, 91 were exploration and production firms, and 45 were oilfield services firms. For more information, visit dallasfed.org.

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Media contact:
James Hoard
Federal Reserve Bank of Dallas
Phone: 214-922-5307
Email: [email protected]

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