Dallas Fed survey shows pessimism in Texas oil industry

DALLAS — If a coal mine has a canary that gives an early heads-up, perhaps an early indicator for the oil and gas industry would be the quarterly Dallas Fed Energy Survey. It’s not as cute as a canary, but it is useful for gauging the goings-on in the Texas petro industry.

I reported earlier this year on a downbeat first-quarter report from the Dallas Fed that we would keep watching this. We do so because oil and gas production contributes billions of dollars to the Texas economy. 

In its report last year, the industry boasted more than 492,000 jobs here with an average pay of $128,255. The Texas Oil and Gas Association also figures it indirectly supports another 1.5 million Texas jobs.

So, it’s important to keep up with how the industry is doing here. And we just got another pessimistic entry. The Dallas Fed’s latest survey in the third quarter included 139 energy firms across Texas and in parts of Louisiana and New Mexico.

When asked about business activity, capital expenditures, employment, and company outlook, many said things have stayed the same since the last survey. But in each of those categories, more of those who reported changes indicated that those changes have trended negatively. And most of them (54 percent) said uncertainty is increasing.

One executive lauded President Trump’s push to wean Europe off Russian oil, saying, “If this shakes out, we could see a massive capital flow into energy as European countries mitigate supply shocks by increasing on-hand inventory”.

But when the Dallas Fed tapped into petro company sentiments, they found a well of pessimism about the current market. And among this usually very conservative-friendly crowd, they found many criticisms of Trump administration policies. 

Several execs complained about the president’s tariffs. Some examples: “Tariffs have pushed pricing higher” … “Tariffs continue to increase the cost of production” … “Tariffs are increasing our supply costs”. 

One added “…with tariffs on foreign tubular goods, [input] prices are up, and drilling is going to disappear”. Another had this take on the big Trump tariff announcement earlier this year: “After Liberation Day, we cut our drilling budget in half from 10 wells to 5 wells”.

The gusher gets broader from there. One respondent told the Dallas Fed, “The uncertainty from the administration’s policies has put a damper on all investment in the oilpatch. Those who can are running for the exits.” 

Another complained that, “The previous administration vilified the industry, buried it in regulation and cheered the flight of capital under the environmental, social and governance banner. Wall Street and pension funds walked away, and even private equity shifted from fueling growth to engineering exits. Now the current administration is finishing the job. Guided by a U.S. Department of Energy that tells them what they want to hear instead of hard facts, they operate with little understanding of shale economics. Instead of supporting domestic production, they’ve effectively aligned with OPEC.”

President Trump has championed oil and gas and has aggressively cut regulations on the industry. But a majority of surveyed oil bosses (57 percent) say those efforts have only brought down their break-even costs for new wells by less than $1 per barrel.

Even with all this said, Texas oil production isn’t far off its high mark from last year, despite the pessimism in the latest survey about current policies and business conditions.

Two more interesting survey takeaways: 41% of these companies said they experienced theft in the oil field in the last year. Those who reported items being taken described equipment and piping valves and wiring disappearing from their sites. But the most common item taken…was oil.

And then this: The executives think natural gas prices will increase more than 10 percent in the next six months, going up from $2.99 per million British thermal units at the time of the survey to $3.35/MMBtu in six months. And they predicted natural gas prices would surge 18 percent in the next year, going from $2.99/MMBtu to $3.53/MMBtu.

Your canary for that kind of upswing would be your electric bill. Keep an eye on electricity rates, because natural gas is the biggest source of fuel for our electricity in Texas, and that kind of jump would have to be reflected in what we pay to keep the lights on.