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The plunge in crude oil prices triggered cuts in jobs and firms’ capital expenditures, the Federal Reserve Bank of Dallas said Wednesday in its quarterly Dallas Fed Energy survey.
“Activity in the oil and gas sector declined significantly in first quarter 2020, according to oil and gas executives responding” to the survey, the bank said.
Special questions in this quarter’s survey include an annual update to the Fed’s data on breakeven prices by basin, expected changes in employee head counts for 2020, impact of the coronavirus on company outlooks, and the ability of firms to remain solvent given lower oil prices, the bank said.
The findings:
Business activity index: The index, the survey’s broadest measure of conditions facing energy firms in the Fed’s Eleventh District, plunged from -4.2 in the fourth quarter to -50.9 in the first. That was “the lowest reading in the survey’s four-year history and indicative of significant contraction. Exploration and production and oilfield services firms both saw large decreases.”
Oil production index: “Plunged 51 points to -26.4. It posted its first negative reading since third quarter 2016. The natural gas production index also turned negative, from 15.6 to -21.2. Both indexes suggest that oil and gas production fell relative to the previous quarter.”
Capital expenditures index: “Dropped from 9.1 in the fourth quarter to -49.0 in the first quarter, indicating a reduction in capital spending among E&P firms. 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 slashed expectations for capital spending next year.”
Worsening conditions: All indexes pointed to “worsening conditions among oilfield services firms. The equipment utilization index fell from -25.8 in the fourth quarter to -47.2 in the first quarter, suggesting an accelerating contraction in equipment utilization. Firms found some relief as 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.”
Jobs: The aggregate employment index “posted a fourth consecutive negative reading, declining from -10.0 to -24.0, a signal that jobs contracted further. 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 outlook: This index “plunged 77 points to -75.0 in the first quarter, indicating an extremely pessimistic outlook. The uncertainty index jumped 38 points to 63.8, pointing to heightened uncertainty regarding firms’ outlooks. Seventy-nine percent of firms reported greater uncertainty.”
Predictions: Respondents expect a West Texas Intermediate oil price of an average $40.50 per barrel by year-end 2020, with responses ranging from $20 to $65 per barrel. Survey participants expect Henry Hub natural gas prices to be $2.03 per million British thermal units by year-end. For reference, WTI spot prices averaged $28.27 per barrel during the survey collection period, and Henry Hub spot prices averaged $1.84 per MMBtu.
Data was collected March 11–19, and 161 energy firms responded. Of the respondents, 107 were exploration and production firms and 54 were oilfield services firms.