Special questions this quarter include an annual update on breakeven prices by basin, anticipated employee head count changes in 2023, the main factor influencing company profitability and the top cause of worker shortages in the oilfield.
Growth in the oil and gas sector stalled out in first quarter 2023, according to oil and gas executives responding to the Dallas Fed Energy Survey. The business activity index—the survey’s broadest measure of conditions facing Eleventh District energy firms—was 2.1 in the first quarter, down sharply from 30.3 in fourth quarter 2022. The near-zero reading indicates activity was largely unchanged from the prior quarter, a break from the more than two-year stretch of rising activity.
Oil and natural gas production increased at a slower pace compared with the prior quarter, according to executives at exploration and production (E&P) firms. The oil production index remained positive but declined to 10.5 in the first quarter from 25.8 in the fourth. Similarly, the natural gas production index fell to 7.4 from 29.4.
Firms reported rising costs for a ninth consecutive quarter as all series remained significantly above their averages. Among oilfield services firms, the input cost index was roughly unchanged at an elevated 61.6. Among E&P firms, the finding and development costs index slipped to 46.8 from 52.5. Additionally, the lease operating expenses index declined 11 points to 37.6.
The supplier delivery time index for all firms moved into negative territory, declining to -14.0 in the first quarter from 14.4 in the fourth. This is the first negative reading since fourth quarter 2020 and signals that it takes less time to receive materials and equipment relative to the prior quarter. Among oilfield services firms, the measure of lag time in delivery of services declined to zero from 20.0, suggesting delivery times for these firms are no longer increasing.
For oilfield services firms, the equipment utilization index slid 29 points to 3.9 in the first quarter. The operating margin index declined to 1.9 from 25.9. The index of prices received for services remained positive but declined to 25.0 from 43.6.
Indexes related to employment and hours worked eased in the first quarter. The aggregate employment index posted a ninth consecutive positive reading but dipped to 14.3 from 25.7. The aggregate employee hours index declined to 12.3 from 27.7 in the prior quarter. Meanwhile, the aggregate wages and benefits index edged higher, to 43.6 from 40.2.
The company outlook index turned negative in the first quarter, falling 27 points to -14.1. The overall outlook uncertainty index increased 23 points to 62.6, pointing to firms’ continued heightened uncertainty regarding their outlooks. Sixty-eight percent of firms reported greater uncertainty.
On average, respondents expect a West Texas Intermediate (WTI) oil price of $80 per barrel by year-end 2023; responses ranged from $50 to $160 per barrel. Survey participants expect Henry Hub natural gas prices of $3.43 per million British thermal units (MMBtu) at year-end. For reference, WTI spot prices averaged $68.51 per barrel during the survey collection period, and Henry Hub spot prices averaged $2.23 per MMBtu.