Dallas Fed: Weak prices have brought 'oil and gas activity to a standstill in the second quarter'

The Federal Reserve Bank of Dallas released its quarterly energy survey on June 23, which found that oil and gas activity was unchanged during the second quarter, while the business activity index dropped to 0, down from 2.1 in Q1.

“Weak oil and gas prices along with high costs brought growth in oil and gas activity to a standstill in the second quarter, according to respondents of our latest energy survey,” Michael Plante, Dallas Fed senior research economist and adviser, said in the release. “The slowdown is negatively impacting oilfield support service firms, which reported declining utilization of equipment and lower operating margins.”

Compared to the previous quarter, the rate of expansion in oil and natural gas output slowed, the release said. Despite the slowdown in business activity, employment, earnings, and benefits all rose, however.

The pay and benefits index came in at 34.5 vs. 43.6 in the first quarter, and the employment index was 13.1 this quarter compared to 14.3 in Q1. Costs increased but at a noticeably slower rate than before.

The index for input costs dropped from 61.6 to 41.2, the index for discovery and developing costs dropped 31.9 points to 14.9 for Q2, and the index for lease operating expenditures dropped from 37.6 to 26. "On net, conditions deteriorated for support service firms this quarter.  Utilization of equipment fell, input costs continued to rise, and operating margins declined," the report stated.

In other key takeaways:

• 60% of executives surveyed said they expected their drilling and completion costs per well to be higher year-over-year than in 2022. Executives at small E&P firms were more likely to report higher drilling and completion costs, while executives at large E&P firms were more likely to report that they expect their costs to drop.
• Executives at 57% of service firms said they expect the cost of their firm's inputs to be higher at year's end over 2022.
• Another 57% of executives reported that global oil consumption has underperformed this year compared to what they expected before China announced its reopening in December 2022. Another 30% said consumption had met their expectations.  
• Only 22% said they expected artificial intelligence to replace some of their firm’s personnel over the next five years. Large E&P companies and support service firms were shown to be more likely to select that response compared to smaller E&P companies, the Fed reported.