Dallas survey reveals current mood of TX shale oil industry

By Luke Geiver | January 04, 2019

As oil prices hover in the low $50 per barrel range, shale oil industry participants remain flat on their activity level commitments. The Federal Reserve Bank of Dallas recently released its oil and gas sector survey. After 10 quarters of rising activity, the most recent survey for Q4 2018 revealed operators and service providers will remain unchanged with their activity levels.

While the business activity index fell sharply from Q3 to Q4—43.3 in Q3 to 2.3 in Q4—the survey still showed that most industry participants believe their respective firms will spend more capital in 2019 than in 2018. The main objective for all operators appeared to be production growth, followed by asset acquisition and the production maintenance.

The following is a portion of the report:

Oil and gas production increased for the ninth consecutive quarter, according to executives at E&P firms. The oil production index moved down from 34.8 in the third quarter to 29.1 in the fourth. Additionally, the natural gas production index fell from 35.5 to 24.8.

The index for utilization of equipment by oilfield services firms dropped sharply in the fourth quarter, with the corresponding index at 1.6, down 43 points from the third quarter. This suggests utilization rates remained relatively unchanged from the third quarter. Input costs on the services side increased but at a slower pace as the index declined from 46.6 to 36.7. Meanwhile, the index of prices received for oilfield services fell sharply from 23.2 to zero, suggesting prices were unchanged on a quarter-over-quarter basis. Looking at the special question responses, operating margins declined for oilfield services firms in the fourth quarter relative to the third.

Labor market indexes pointed to moderation in both employment and work hours growth in the fourth quarter, particularly for oilfield services, while wage growth accelerated. The employment index for services fell sharply, from 31.7 to 17.5. The hours worked index for services also dropped, from 41.0 to 19.4. The declines were smaller for E&P firms as the employment index moved down from 17.4 to 11.5 and the hours worked index fell from 12.8 to 7.7. The aggregate wages and benefits index advanced from 23.5 to 32.9.

The company outlook index posted its first negative reading since first quarter 2016, plunging 57 points to -10.2 in the fourth quarter. This drop was particularly prominent among oilfield services firms, where the company outlook slumped 64 points to -17.2. The uncertainty index jumped 34 points to 42.4, pointing to heightened uncertainty regarding firms’ outlooks. Almost 58 percent of firms reported greater uncertainty.

When asked about expectations for where West Texas Intermediate (WTI) oil prices would be by year-end 2019, the average response was $59.97 per barrel. This is close to $11 higher than the average spot price during the survey period, which was $49.22 per barrel. Responses ranged from $45 to $80.

On average, respondents expect Henry Hub natural gas prices to be $3.34 per million British thermal units (MMBtu) at the end of 2019. Responses ranged from $2 to $5.50. For reference, Henry Hub spot prices averaged $3.97 per MMBtu during the survey collection period.

To view the special questions posed to industry and answered in the survey, click here.

For Price Forecasts, click here.