The most recent Federal Reserve Bank of Dallas survey of energy executives found that the fourth quarter of 2024 brought increases in activity for the oil and gas sector, as firms look towards 2025 with optimism.
According to the latest survey of energy executives operating in Texas, northern Louisiana, and southern New Mexico, oil and gas production was mixed in the fourth quarter. Oil production declined from 7.9 in the third quarter to 1.1 in the fourth quarter, however, the oil production index remained positive, suggesting little change. Natural gas production remained negative but saw an increase from -13.3 to -3.5.
The Dallas Fed also surveyed executives from oil and gas exploration and production (E&P) companies for a series of special questions on capital spending and investment plans in 2025, as well as other topics, like permitting times on federal lands and plans for reducing emissions.
Optimism for 2025
According to several respondents, there is a more optimistic outlook among the industry for 2025 than 2024. The company outlook index surveyed turned positive, increasing 19 points from its third quarter data point, which suggests optimism among firms.
This optimism is reflected in respondents’ expectations for their capital spending in 2025, as compared to 2024. Forty-three percent of executives said they expect capital spending to increase slightly, while an additional 14 percent anticipate a significant increase. Only 23 percent anticipate reductions in their spending in 2025. Furthermore, 34 percent said their firms anticipate increasing their investment in 2025 beyond what they planned to invest as of three months ago.
Results of previous surveys showed an industry entrenched in uncertainty. The shift to a more optimistic mindset is likely rooted in anticipated changes for the political landscape, as the incoming Trump administration plans to prioritize U.S. oil and natural gas production. One executive from an oil and natural gas support services firm commented how the presidential election led to less uncertainty for the industry, which is also reflected in a decline in the outlook uncertainty index from 26 points to 22.4:
“The outcome of the presidential election removes the risk of the unknown, and the incoming president is not expected to be a barrier for the oil and gas industry, as the current one was. Though no immediate relief, at least policies will be clear and likely supportive, or at the least, not restrictive. We expect the ban on permits for LNG export terminals to be lifted, which will eventually lead to stabilizing natural gas prices and reduced barriers to oil production via providing a market for the associated gas production.”
Shifts in Political Atmosphere
The Biden administration’s animosity towards oil and natural gas companies stands in stark contrast to the incoming Trump administration’s promised support of U.S. energy. Many survey respondents specifically commented on the anticipated positive changes in the political landscape following Trump’s inauguration. One executive from an exploration and production firm summarized the shifts in the industry’s outlook:
“The recent election result is changing outlooks. The new administration will lift regulations, stop subsiding green energy and seek LNG build-outs to place more demand on natural gas.”
Similarity, another executive from an oil and natural gas support services firm described a more optimistic outlook because of the new administration:
“There is more optimism looking at first quarter 2025 than first quarter 2024. Much of 2024 felt like a waiting game as M&A activity kept clients in a holding pattern. First quarter 2025 has more people talking about putting rigs in the ground (versus first quarter 2024). We think the election results will be good for activity even if it’s just because operators and service companies have a clear direction for planning.”
One specific area executives expect to see improvement in over the next four years is permitting times for drilling wells on federal lands. Thirty-five percent of executives said they expect permitting times to decrease slightly, while an additional 33 percent expect significantly quicker permitting.
And, in a timely remark that proceeded President Biden’s latest executive action banning 625 million ocean acres from offshore development, an E&P executive called out the need for a revamp in offshore leasing regulations:
“We are encouraged that the new administration in Washington, D.C., will enact some positive regulatory changes for offshore drilling in the U.S.”
However, even in a more supportive political landscape, executives still express concerns over regulatory issues, particularly as activists look to the courts to achieve limits on fossil fuel production. One executive at an E&P firm explained:
“Regulatory issues continue to be the biggest hindrance to our business. Plaintiff lawsuits are on the increase.”
Another executive at an E&P firm was more specific with their opinion of which policies hinder oil and gas production in the United States:
“Permitting politics by California regulatory agencies are intrusive and problematic. California is usurping federal leases and blocking federally permitted operations. This prevents development and, therefore, reduces payments to the federal government in lease royalties. This needs significant federal, Bureau of Land Management and political intervention immediately.”
Greenhouse Gas Emissions
A key part of the special questions section of the most recent Dallas Fed survey consisted of a series of questions regarding plans for reduction in greenhouse gas emissions. E&P firms were asked if they had any of the following plans: reduce carbon emissions, reduce methane emissions, reduce flaring, recycle/reuse water, or invest in renewables.
Overall, higher percentages of large firms had plans to pursue the environmental objectives, as compared to small firms. (Small firms produced less than 10,000 b/d in the fourth quarter of 2024, while large firms produced more than 10,000 b/d.) For example,57 percent of executives said their large firms plans to reduce carbon dioxide emissions, 64 percent indicated plans to reduce methane emissions, 86 percent to reduce flaring, 43 percent to recycle/reuse water and seven percent to invest in renewables, highlighting the industry’s continued voluntary efforts to invest in environmental solutions.
Bottom line: With oil and natural gas activity increasing in the fourth quarter of 2024, anticipated changes in the political atmosphere from the incoming Trump administration are leading to a more optimistic outlook among firms in the Permian Basin.
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