Activity in the oil and gas sector “jumped” during the fourth quarter, as oil production stabilized, capital expenditures by exploration and production firms increased, and layoffs slowed, according to oil and gas executives who responded to the quarterly Dallas Fed Energy Survey. Firms also appeared more certain about their prospects in 2021 than in recent quarters.
The findings in the survey, released last week:
- The oil and gas business activity index—the survey’s broadest measure of conditions in the Federal Reserve Bank’s Eleventh District — rose to 18.5 in the fourth quarter from -6.6 in the third quarter. “This is the first positive reading for the business activity index since first quarter 2019,” with exploration and production and oilfield services behind the increase.
- Oil production “stabilized after three quarters of decline,” as the index rose to 1.0 from -15.4 in the quarter. The natural gas production index increased 8 points to -2.1. “The near-zero readings for both indexes indicate oil and gas production was fairly flat in the fourth quarter,” the Dallas Fed’s report accompanying the survey findings said.
- The index for capital expenditures by E&P firms rose to 12.5, from -16.4 in the third quarter, “indicating an increase in capital spending.” The index for capital expenditures by oilfield services firms increased but remained negative, rising to -6.2 from -35.1. “This suggests that, while capital spending continued to decline, the pace of decline slowed notably in the fourth quarter.”
- Oilfield services firms saw improvement in the equipment utilization index, which jumped 25 points to 6.4. “This was the first positive reading since second quarter 2019.” But operating margins “continued to decline, with the index holding fairly steady at -31.9.” The index of prices received for services remained negative and moved lower to -29.7 from -26.4. The index for input costs remained negative, but moved higher, to -4.3 from -9.5.
- Employment “continued to decline, but layoffs abated somewhat.” The aggregate employment index recorded a seventh consecutive negative reading, but rose to -11.7 from -18.1. The index of aggregate employee hours worked remained negative, but rose to -6.9 from -15.3. The index for aggregate wages and benefits rose to -12.4 from -19.4.
‘Six-month outlooks improved notably, with the index rising from 1.9 last quarter to 21.6,” the report said. “This is a stark recovery from the significantly negative readings in first and second quarter 2020.”
For prices, “on average, respondents expect a West Texas Intermediate oil price of $50 per barrel by year-end 2021; responses ranged from $35 to $70 per barrel,” the report said. Survey participants expect Henry Hub natural gas prices of $2.76 per million British thermal units at year-end.
WTI spot prices averaged $47 per barrel during the survey collection period, and Henry Hub spot prices averaged $2.60 per MMBtu, the Fed said.
Data was collected Dec. 9–17, and 146 energy firms responded. Of the respondents, 97 were exploration and production firms and 49 were oilfield services firms.