Energy Sector Activity Brisk, E&P and Services Strong, Pipeline Capacity and Labor a Problem: Dallas Fed Survey

July 3, 2018

 

The second quarter of 2018 was strong for the energy sector, according to executives responding to a survey from the Federal Reserve Bank of Dallas.

The survey’s broadest measure of conditions of included energy firms — the business activity index — was up from a first-quarter 40.7 to 44.5 in the second quarter.

That’s the highest level since the survey began two years ago, the Fed reported, driven by E&P and by oilfield services companies.

Almost all indexes in the most recent survey show quarterly expansion, including a healthy labor market that showed rapid employment growth and increased work hours.

There were, however, recurring concerns especially from Permian Basin executives on the increasingly limited crude pipeline capacities and trouble finding workers, as well as cost inflation (mentioned as a concern both in and outside the Permian) that could present constraints on future growth, the Dallas Fed noted.

 

Highlights from the survey:

 

Oil and gas production rose for the seventh quarter in a row, according to executives at E&P firms. The oil production index advanced from 34.3 in the first quarter to 39.0 in the second, and the natural gas production index moved up from 25.0 to 33.4. Both indexes are at their highest levels since the survey began.

 

Labor market indexes pointed to more rapid growth. The employment index was 44.1 for services firms and 11.6 for E&P firms—the highest levels for both indexes since the survey began. The hours worked indexes were at or near all-time highs.

 

Costs continue to rise. Utilization of oilfield services firms’ equipment increased at a slightly faster pace than in the first quarter, with the corresponding index at 42.1. Input costs continued rising but at a slower pace than last quarter as the index of input costs fell from 46.8 to 36.3. The index of prices received for oilfield services ticked down from 27.9 to 23.2.

 

Many firms report no trouble hiring. Among all executives, 31 percent noted that their firm was having problems hiring, while 69 percent noted that their firm was not having problems hiring. Among support services firms, 47 percent of executives responded that they were having problems hiring, while only 18 percent of E&P firms noted problems hiring. Many firms report they are increasing wages and/or benefits to recruit and retain employees.”

 

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

Data were collected June 13–21, and 137 energy firms responded to the survey. Of the respondents, 78 were exploration and production firms and 59 were oilfield services firms.