Dallas Federal Reserve: Oil and gas expansion accelerates as outlooks improve significantly
Activity in the oil and gas sector accelerated during first-quarter 2022, according to oil and gas executives responding to the Dallas Fed Energy Survey, which is punctuated with a number of record highs. The business activity index—the survey’s broadest measure of conditions facing Eleventh District energy firms—jumped from 42.6 in the fourth quarter to 56.0 in the first quarter, reaching its highest reading in the survey’s six-year history.
Oil production increased at a faster pace, according to executives at exploration and production (E&P) firms. The oil production index rose sharply from 19.1 in the fourth quarter to 45.0 in the first quarter. Similarly, the natural gas production index advanced 14 points to 40.0.
Costs increased for a fifth straight quarter. Among oilfield service firms, the index for input costs increased from 69.8 to 77.1—a record high. Only one of the 50 responding oilfield service firms reported lower input costs during the first quarter. Among E&P firms, the index for finding and development costs advanced from 44.9 in the fourth quarter to 56.0 in the first. Additionally, the index for lease operating expenses also increased, from 42.0 to 58.9. Both indexes reached highs for the survey’s six-year history.
Oilfield service firms reported improvement across all indicators. The equipment utilization index remained elevated, but it edged down from 51.1 in the fourth quarter to 50.0 in the first. The operating margin index advanced from 11.6 to 21.3. The index of prices received for services jumped from 30.3 to 53.2, a record high.
All labor market indexes in the first quarter reached record highs, pointing to strong growth in employment, hours and wages. The aggregate employment index posted a fifth consecutive positive reading and increased from 11.9 to 28.0. The aggregate employee hours index jumped from 18.0 to 36.0. The aggregate wages and benefits index also rose, from 36.6 to 54.0.
Expectations. Six-month outlooks improved significantly, with the index climbing from 53.2 in the last quarter to 76.3, a record high. The outlook uncertainty index also jumped from -1.5 to 31.9, suggesting uncertainty became much more pronounced during this quarter.
On average, respondents expect a West Texas Intermediate (WTI) oil price of $93/bbl by year-end 2022; however, responses ranged from $50/bbl to $200/bbl. Survey participants expect a Henry Hub natural gas price of $4.57 per million British thermal units (MMBtu) at year-end. For reference, WTI spot prices averaged $103.07/bbl during the survey collection period, and Henry Hub spot prices averaged $4.65/MMBtu.
