US oil executives see slowing output as investment declines: Dallas Fed

Washington — Oil and gas production increased in second-quarter 2019 throughout Texas, the 11th consecutive quarter of growth, but that growth is beginning to slow and a lack of investment could accelerate an output fall, the Federal Reserve Bank of Dallas said in its quarterly survey of oil and gas firms Wednesday. Overall activity in the oil and gas sector was flat in Q2 following three years of record growth, the Dallas Fed said. The survey’s business activity index, a broad measure of economic conditions in the Dallas Fed’s district, dropped below zero in Q2, due to declines in activity from exploration and production and oilfield services companies, the Dallas Fed said. “Positive survey readings generally indicate expansion; those below zero suggest contraction,” the survey said. In anonymous comments released with the survey, E&P executives repeatedly pointed to a loss of investment in both the conventional and unconventional oil and gas plays. This is already hindering new exploration and will likely increase the likelihood of future bankruptcies and mergers, according to the comments.

“It is very true that cash is drying up, and it is going to be hard to get financing to drill our wells,” one E&P executive wrote.

“The erratic nature of energy prices makes it very hard to invest currently,” wrote another. “It also makes hedging a very difficult decision.” “Industry decision-making is slowing and everybody is trying to delay spending,” wrote another. Credit available from banks has declined, companies are more focused on living within cash flow and expansion plans have slowed, according to the comments. “We are confining our ‘new’ business to acquisition of existing production,” another executive wrote. “From the day-to-day event-driven market price for crude, coupled with the perpetually growing production levels, there is little basis for engaging in ‘wishful’ projections that ignore the reality of supply in excess of demand without apparent change in either component in the near or intermediate term.” Other comments focused on trade war fears, political instability ahead of the 2020 US presidential elections, pipeline constraints out of the Permian, and oversupply of both oil and gas amid weakening demand. “There are many darkening clouds on the horizon at the moment,” an executive with an oilfield services company wrote.