Capital spending plans among exploration and production (E&P) firms in the Federal Reserve Bank of Dallas’ service area have retreated since early spring amid persistent economic and political uncertainty. But companies have been steadily increasing their oil and natural gas output this quarter, according to the latest Dallas Fed Energy Survey.
Executives from 138 companies active in Texas as well as parts of New Mexico and Louisiana responded to the Dallas Fed’s quarterly inquiries about production and spending during a 9-day window mid-June. Answers suggest, among other things, that some companies have pulled forward some spending to grow production now rather than hold off for the future. Three months ago, the same number of respondents (about 29% of the total) said they planned to either increase or cut back on spending; this time around, only 22% told the Fed they plan to trim their capex but 32% said they are growing capex budgets (OGJ Online, March 27, 2024).
However, the number of executives planning to ramp up capex in the next year have shrunk to 36% from 47%, while those planning 2025 spending cuts have nearly doubled to 19%. Two things of note about the data: It is volatile quarter to quarter, but the second-quarter shifts still leave spending intentions above end-2023 levels and above year-ago levels.
The outlook for spending looks to remain volatile based on many responses from company leaders, many of which focused on uncertainty and the impact of regulations and other bureaucratic initiatives. A sample:
- “New regulations prevent short- and long-term planning on every level of business investment.”
- “Uncertainty of the economy’s direction makes it a real challenge in making company policy.”
- “Raising capital is really tough when so much uncertainty is being injected into the market. The constant drone of ‘We don’t need fossil fuels’ is taking its toll, the effects of which will someday be realized by the market, and it won’t be pretty.”
- “The uncertainty of regulatory policy between the Democratic and Republican parties makes us stop new capital spending commitments.”
- “Toward the end of [the first] quarter and throughout the second quarter, however, it seems there was an overall pullback of business as our customers were uncertain what the balance of 2024 was going to be like, especially with the upcoming election.”
The survey’s headline business activity reading for second-quarter 2024 climbed to 12.5 from 2.0 in this year's first quarter, and E&P firms’ activity level rose to 14.5 from 4.2. The production reading from E&P companies for both oil and natural gas production improved to mildly positive levels from negative readings early this year.
A possible contributor to the drill-now mindset this quarter is a relative drop in finding and development costs for E&P firms: After two quarters in which a net 24% of respondents said those expenses were climbing, that indicator retreated to the levels where it spent the middle of 2023.
To read the Dallas Fed’s survey, click here.
