Kunal Patel of the Federal Reserve Bank of Dallas talks in detail about their most recent Dallas Fed Energy Survey which involved about 200 oil and gas firms.
According to Patel, Activity in the oil and gas sector continued growing strongly in second quarter 2021, according to oil and gas executives responding to the Dallas Fed Energy Survey. The business activity index—the survey’s broadest measure of conditions facing Eleventh District energy firms—remained elevated at 53.0, essentially unchanged from its first-quarter reading.
Oil and gas production increased, according to executives at exploration and production (E&P) firms. The oil production index rose from 16.3 in the first quarter to 35.0 in the second quarter—its second-highest reading since the survey’s inception in 2016. Similarly, the natural gas production index increased 19 points to 35.0.
The index for capital expenditures increased from 31.0 to 42.4, indicating an acceleration in capital spending among E&P firms. Additionally, the index for the expected level of capital expenditures next year came in at 53.0, up from 49.5 in the first quarter.
Costs are rising. Among oilfield services firms, the index for input costs rose notably, from 36.0 to 56.0—a record high and suggestive of significant cost pressures. No oilfield services firms reported a decrease in input costs this quarter. Among E&P firms, the index for finding and development costs jumped from 3.9 in the first quarter to 28.3 in the second. Additionally, the index for lease operating expenses also increased, from -5.9 to 23.4.
Oilfield services firms reported improvement across all indicators. The equipment utilization index remained positive, though slipping from 63.2 in the first quarter to 42.0 in the second. Operating margins improved further, with the index increasing from 14.0 to 22.5. The index of prices received for services rose from 20.0 to 30.0.
The aggregate employment index posted a second consecutive positive reading, edging up from 8.4 to 9.9. Employment growth continues to be driven primarily by oilfield services firms. The employment index was 25.5 for services firms versus 2.0 for E&P firms. The aggregate employee hours index edged up from 22.8 to 24.0. The aggregate wages and benefits index also increased, from 14.8 to 20.6.
Six-month outlooks improved notably, with the index moving up from 70.6 last quarter to 71.9—the highest reading in the survey’s five-year history. While uncertainty continued to decline, the aggregate index increased three points to -19.6.
On average, respondents expect a West Texas Intermediate (WTI) oil price of $70 per barrel by year-end 2021; responses ranged from $49 to $85 per barrel. Survey participants expect Henry Hub natural gas prices of $3.10 per million British thermal units (MMBtu) at year-end. For reference, WTI spot prices averaged $71 per barrel during the survey collection period, and Henry Hub spot prices averaged $3.24 per MMBtu.
Next Dallas Fed Survey release: September 29, 2021
About the Dallas Fed Survey
The Dallas Fed conducts a quarterly survey of about 200 oil and gas firms located or headquartered in the Eleventh District—Texas, southern New Mexico and northern Louisiana—which operate regionally, nationally or internationally.
The information collected is a valuable component of economic analysis and serves as input for Federal Open Market Committee monetary policy deliberations. Survey respondents are asked whether various measures of their firms’ business activities have increased, decreased or remained unchanged relative to the prior quarter and the year-ago quarter. Responses are aggregated into diffusion indexes; positive values indicate expansion while negative values indicate contraction.
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