Activity in the oil and gas sector declined slightly in third quarter 2024, according to oil and gas executives responding to the Dallas Fed Energy Survey. The business activity index, the survey’s broadest measure of the conditions energy firms face in the Eleventh District, decreased from 12.5 in the second quarter to -5.9 in the third quarter. The business activity index was 0 for exploration and production (E&P) firms compared with -18.1 for services firms, suggesting activity was unchanged for E&P firms but declined for service firms.
Oil and gas production was mixed in the third quarter, according to executives at E&P firms. The oil production index increased from 1.1 in the second quarter to 7.9 in the third quarter, suggesting oil production slightly increased in the quarter. Meanwhile, the natural gas production index declined from 2.3 to -13.3, suggesting natural gas production decreased in the quarter.
Costs rose but at a slower pace when compared with the prior quarter. Among oilfield services firms, the input cost index fell from 42.2 to 23.3. Among E&P firms, the finding and development costs index declined from 15.7 to 9.9. Meanwhile, the lease operating expenses index edged lower from 23.6 to 21.3. Two of the three cost indexes trailed the series average, suggesting costs are growing at a slower-than-average pace.
The equipment utilization index for oilfield services firms turned negative, declining from 10.9 in the second quarter to -20.9 in the third. The operating margin index fell sharply from -13.0 to -32.6, suggesting margins declined at a faster pace. The prices received for services index was relatively unchanged at -2.3.
The aggregate employment index was unchanged at 2.9 in the third quarter. While this is the 15th consecutive positive reading for the index, the low-single-digit result suggests little-to-no net hiring. The aggregate employee hours index declined from 8.1 to -2.3. Additionally, the aggregate wages and benefits index decreased from 24.0 to 18.6.
The company outlook index turned negative in the third quarter, plunging 22 points to -12.1, suggesting modest pessimism among firms. The overall outlook uncertainty index jumped 25 points to 48.6, suggesting mounting uncertainty.
On average, respondents expect a West Texas Intermediate (WTI) oil price of $73 per barrel at year-end 2024; responses ranged from $55 to $100 per barrel. When asked about longer-term expectations, respondents on average expect a WTI oil price of $81 per barrel two years from now and $87 per barrel five years from now. Survey participants expect a Henry Hub natural gas price of $2.62 per million British thermal units (MMBtu) at year-end. When asked about longer-term expectations, respondents on average anticipate a Henry Hub gas price of $3.24 per MMBtu two years from now and $3.89 per MMBtu five years from now. For reference, WTI spot prices averaged $70.82 per barrel during the survey collection period, and Henry Hub spot prices averaged $2.23 per MMBtu.
