Third-quarter energy sector activity declined, according to the Federal Reserve Bank of Dallas quarterly energy survey, Kallanish Energy reports.
The business activity index — the survey’s broadest measure of conditions facing 11th District energy companies — fell to -7.4 in the third quarter, from -0.6 in the second quarter. Negative survey readings indicate contraction; those above zero suggest expansion, according to the Dallas Fed.
Oilfield services firms led the decline, with their business activity index slumping to -21.8 from 6.6. Among oilfield services firms, the equipment utilization index dropped 27 points to -24.0 — its lowest reading since 2016.
Also, the prices received for services index fell further into negative territory, to -18.5 from -12.1.
“Conditions in the oil and gas sector deteriorated in the third quarter, with overall activity and employment declining modestly. Oilfield service firms were most affected, with a sharp drop in equipment utilization and operating margins,” said Michael Plante, Dallas Fed senior research economist. “In general, the survey results suggest the second half of 2019 is going to be a tough one for the industry.”
“When asked about what factors are restricting near-term growth in activity, 42 % of survey respondents cited low oil and natural gas prices as the prime constraint,” Plante said. “Limited access to credit and capital, as well as investor pressure to generate free cash flow, were also mentioned as limiting factors.”
Other survey highlights include:
* Oil and gas production increased. The oil production index was at 15.7 in the third quarter, according to exploration and production executives. The natural gas production index fell to 6.5 from 13.4, suggesting a slower pace of growth this quarter.
* Employment declined and wage growth slowed. The aggregate employment index slid to -8.0 from -2.5. The hours worked index declined to -2.4 from 3.1, and the index for aggregate wages and benefits fell to 6.2 from 14.5.
Company outlooks remained unchanged overall. However, outlooks for oilfield services firms remained negative at -14.8. While uncertainty continues to intensify, slightly fewer firms noted rising uncertainty this quarter than last, and the index fell 12 points to 38.
The quarterly Dallas Fed survey samples oil and gas companies headquartered in the Eleventh Federal Reserve District: Texas, southern New Mexico and northern Louisiana.
Data were collected Sept. 11–19, and 163 energy firms responded. Of the respondents, 108 were exploration and production companies and 55 were oilfield services firms.
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