But the quarterly report also shows capex intentions climbing again.
Oil exploration and production (E&P) firms in the footprint of the Federal Reserve Bank of Dallas are generally pulling in the reins—and souring sentiment among oilfield services firms—but also growing more upbeat about their plans several quarters out.
The latest Dallas Fed Energy Survey, which polled about 150 executives in Texas as well as parts of New Mexico and Louisiana, also showed that companies focused on natural gas production are cutting back aggressively in the face of low prices and the Biden administration’s move to pause approvals of LNG export plants (OGJ Online, Jan. 26, 2024). And the report’s reading on wages and benefits was the strongest since the middle of last year, suggesting that previous signs of labor pressures easing were more hope than fact.
The survey’s headline business activity indicator ticked down slightly from December and remains barely in positive territory. The leaders responding to the Fed said they have trimmed their workforces but added to the hours worked of those still on their payroll. The data show a growing gap between E&P firms and their services providers: The former have grown more upbeat about employment and hours worked since December while a quarter of the latter group cut staff this quarter (up from just one in 10 late last year) and said their overall activity levels and operating margins continue to worsen.
“The first quarter of 2024 was surprisingly quiet, especially compared with the first quarter of 2023,” one service company executive told Fed researchers. “Operators [are] waiting to understand the landscape as heavy merger and acquisition activity continued. It feels like second-quarter 2024 is seeing glimmers of increased activity and third-quarter 2024 has the potential to be stronger.”
That forward-looking optimism rang true across the group in this survey—as well as among many publicly companies who recently reported their fourth-quarter results (see sidebar). The report’s overall outlook indicator clocked in at a +12 versus -12.4 in fourth-quarter 2023 and E&P companies’ capital spending plans—which were generally in retreat 3 months ago—popped to their highest level since third-quarter 2022, with 47% of respondents saying they will increase capex in the coming year (OGJ Online, Dec. 20, 2023).
The relatively quiet current readings and more upbeat outlook among oil-and-gas executives echo similar sentiments among industrial-company leaders more broadly. A recent analysis by Oil & Gas Journal sister brand IndustryWeek of conference call transcripts showed that manufacturing executives haven’t seen much change in overall demand for their products but do expect a pick-up in activity in the second half of this year.
