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Dallas Federal Reserve Releases Optimistic First Quarter Survey

The Dallas Federal Reserve published its first quarter survey of oil and gas sector executives and found increased business activity over the past three months and widespread optimism about the future.

According to the survey, 59% of respondents said business activity was up in the first quarter of 2021, as compared to the final quarter of 2020. Just 6% reported a decrease. Approximately 44% of executives said that capital expenditures were higher vs. just 13% reporting reductions. The survey results signal further capital expenditure increases in 2022, according to the Dallas Fed.

Three-quarters of respondents said their company’s business outlook was improved vs. 5% who said their outlook was worsened. While 43% said uncertainty about the future was decreased, 57% worry about the course of the pandemic and possible government regulation. Some 58% said they’re concerned increased federal regulation could make their business unprofitable.

Others saw potential regulation as an opportunity.

“Time will tell, but closing loopholes on flaring could actually stimulate some areas of our business,” wrote one executive in response to the survey’s open-ended questions. “The bigger E&P firms are already moving in that direction.”

“Our company is looking to diversify our operations so that we have other revenue streams that aren’t impacted by federal regulation,” wrote another.

“Regulations that restrict access to drillable locations will make other drillable areas more attractive and will lead to improved commodity prices,” wrote a third. “The use of hydrocarbons is not going away anytime soon, and should the economy rebound to need 100 million barrels a day again, oil and gas prices will improve to make those barrels profitable. Restrictive federal regulations will only exacerbate the potential price spike.”

Employment figures improved somewhat, according to the survey, as oil and gas firms increase business activity and began boosting production. More than half (53%) expect their head count to remain unchanged and 44% expect an increase.

The sector’s overall six-month outlook improved to the highest level in the survey’s five-year history.

On average, the breakeven point on oil prices is $52 per barrel with a low of $46 in the Permian and Eagle Ford, and a high of $58 in “other” U.S. shale, according to the survey.

Executives were modestly optimistic about pricing — 71% expect the selling price of their firm’s primary service to increase slightly this year. An additional 6% expect a significant increase. Survey respondents recognize the volatility of oil and gas markets, which has been exacerbated by the pandemic.

“As usual, the price of oil is so unpredictable,” wrote one executive. “I never would have guessed it would hit $65 per barrel in March of 2021.”

“The Dallas Fed study confirms what our sector has been seeing on the ground the past few months. Activity is picking up as America rebounds from the COVID economic slump. We appear to be on the cusp of a huge surge in demand for all forms of energy, and oil and gas will be a big part of what satisfying this demand. We’re urging policymakers to support policies that continue to allow the men and women of our industry to provide America with the energy it needs to sustain our recovery.” 

Tim Tarpley, SVP Government Affairs & Counsel, Energy Workforce & Technology Council

For more information about the Council’s advocacy efforts, contact SVP Government Affairs & Counsel Tim Tarpley.

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