By ,Oil Editor |Midland Telegram-Reporter| Buffeted by geopolitical risk, trade policies and other factors, energy companies in the Federal Reserve’s 11th District are retreating into their shells.
Uncertainty permeated responses to the Federal Reserve Bank of Dallas’ quarterly Energy Survey, where the uncertainty index climbed 21 points to 43.1 for the quarter.
“I have never felt more uncertainty about our business in my entire 40-plus-year career,” wrote one respondent.
“The (uncertainty) index is above the average of 22,” said Kunal Patel, senior business economist at the Dallas Fed, in discussing the survey results with the media.
While the first quarter of 2020 may have had the highest result — 63.8 — as the pandemic began to impact global economies, this quarter’s uncertainty index is something to watch, he added.
Patel noted that commodity price volatility has increased in recent months and is traditionally driven by uncertainty. Concern over tariffs dominated responses to the survey.
“The administration’s chaos is a disaster for the commodity markets,” wrote one respondent. “’Drill, baby, drill’ is nothing short of a myth and populist rallying cry. Tariff policy is impossible for us to predict and doesn’t have a clear goal. We want more stability.”
Wrote another respondent: “Planning for new development is extremely difficult right now due to the uncertainty around steel-based products. Combined, our ability to plan operations for any meaningful amount of time in the future has been severely diminished.”
The survey’s business activity index — the broadest measure of conditions facing 11th District energy firms — came in at 3.8, suggesting slight growth since the last survey.
Oil and natural gas production both grew slightly this quarter. The oil production index was 5.6 vs. 1.1 last quarter, while the natural gas production index was 4.8, an increase of 8.
With flow rates from new shale wells declining rapidly, Patel said increasing production means either completing better wells or drilling more wells, something the industry appears reluctant to undertake.
“To see more production growth, you need more drilling activity and companies are indicating their expenditures will be flat to slightly down,” he said.
Another finding was an increase in average breakeven prices to drill new wells profitably, according to Patel. Across all responses, the average was $65 a barrel, up $1 from the average in the first quarter of 2024. For large operators—those producing 10,000 barrels a day or more—the breakeven was $61, compared to $66 for smaller operators producing less than $10,000 barrels a day.
Employment and employee hours both remained close to last quarter’s level. The employment index was 0, down slightly from 2.2 in the fourth quarter of 2024. Employee hours were 0.7, suggesting little change from last quarter.
Costs rose at a faster pace. The lease operating expenses index increased to 38.7 from 25.6, the finding and development costs index rose 6 points to reach 17.1, and the input costs index for oilfield support service firms was 30.9 vs. 23.9.
