Federal Reserve Bank of Dallas: Texas oil sector contracting amid ‘challenging’ conditions

Energy sector activity dipped again in the fourth quarter, according to executives responding to the Federal Reserve Bank of Dallas Energy Survey. The Federal Reserve Bank of Dallas has appointed Von Washington to its El Paso Branch board of directors. The Federal Reserve Board of Governors has appointed Claudia Aguirre of Houston to the Federal Reserve Bank of Dallas board of directors.

The contraction of the oil and gas industry in and around Texas continued in the fourth quarter as shale producers cut back on spending and jobs. Texas emits more carbon dioxide gas than any other state but is also a leader in renewables. The bank’s business activity index was -4.2 for the final three months of the year, compared with -7.4 in the third quarter.

The state added a revised 32,800 jobs in April. Year-to-date annualized job growth stands at 2.3 percent. The survey covers the 11th Federal Reserve District, which includes not just Texas but energy-rich parts of Louisiana. Texas service sector activity growth weakened in May, according to business executives responding to the Texas Service Sector Outlook Survey.

The bank’s indexes for capital spending, employment and employee hours were also negative for the fourth quarter. Texas added 18,500 jobs in February, according to seasonally adjusted and benchmarked payroll employment numbers released today by the Federal Reserve Bank of Dallas. The data showed oilfield service companies bearing the brunt of the slowdown.

The survey’s broadest measure of conditions facing Eleventh District energy firms. The two trends place the state in the center of the climate change debate, according to the Federal Reserve Bank of Dallas’ Southwest Economy. Texas Employment Forecast suggests jobs will grow 2.3 percent this year. The exploration and production companies reported a small uptick in business activity.

As a Dallas Fed board member, she will provide input into regional and national economic conditions as part of the Federal Reserve’s monetary policy functions. The third-quarter issue of Southwest Economy takes a closer look at how issues related to climate change are playing out in the Lone Star State. Overall, the survey will likely reinforce the existing gloom surrounding oil and gas.

CO2 emissions in terms of population and output—the carbon intensity of the state put the state closer to the middle of the pack. The revenue index, a key measure of state service sector conditions, dropped from 13.9 in April to 2.7 in May. It achieve consistent free cash flow and investor returns in the face of stagnant oil prices and a plunge in the price of natural gas.

“We have noticed an uptick in comments by acquaintances associating our business with the global warming narrative”, President said.

Activity for oilfield services firms continued to decline, with their business activity index at ‑22.1. Based on the forecast, 292,100 jobs will be added in the state this year, and employment in December 2019 will be 12.9 million. The employment index declined nearly five points but held positive at 6.8. The state added a revised 20,400 jobs in January.

On average, respondents in the survey said they expect the price of West Texas Intermediate crude to be $58.54 a barrel by the end of 2020. Texas service sector activity decelerated in May, as revenue growth slowed and labor market indicators softened. The Texas Employment Forecast suggests jobs will grow 1.5 percent this year (December/December), with an 80 percent confidence band of 0.2 to 2.8 percent.

The benchmark traded Friday at around $61.80. The expectation for Henry Hub gas is $2.51 per million British thermal units, about 20-30 cents above where it currently trades. The general business activity index fell six points to -0.3, while the company outlook index fell into negative territory at 2.3. Job growth in the first two months of the year generally was steady at a pace slightly below 2.0 percent.

The controversial practice of gas flaring also featured in the latest survey. The outlook uncertainty index surged from 12.8 to 19.3 in May. The three primary factors facing the Texas economy in 2019 remain historically tight labor markets. A lack of pipeline capacity was the main reason for flaring most frequently identified by respondents.

The wages and benefits index fell to 19.0 in May, while the selling prices index fell to 4.6. The input prices index slipped two points to 23.7. As usual, the Dallas Fed’s quarterly report includes unattributed comments from respondents, which provide color in addition to the survey data. These factors will likely slow Texas job growth this year,” Phillips said.

The capital markets for oil and gas remain extremely difficult. The manufacturing and mining sectors have slowed this year likely due to increased tariffs. The survey also includes a component called the Texas Retail Outlook Survey. The Dallas Fed improves Bureau of Labor Statistics (BLS) payroll employment estimates for Texas by incorporating preliminary benchmarks.

The risk appetites of the banks for energy lending are much lower. The sales index plummeted from 13.2 in April to -9.2 in May, its lowest value since 2015. It is a very challenging operating environment for smaller E&P operators. The employment index fell over 12 points to -3.8, while the hours worked index declined to -7.8, its lowest reading since late 2016.

The business activity index for exploration and production (E&P) firms indicated modest growth, rising from zero to 5.4. Viability of some oilfield service firms is a concern due to financial concerns. The general business activity index fell from -10.7 to -15.5, while the company outlook index plummeted over 15 points to -20.4, a near-decade low.

The operators will want to work with fewer, more financially stable and safer suppliers. The outlook uncertainty index surged to a record high of 34.6. Texas metropolitan-area unemployment rates from the BLS also are seasonally adjusted by the Dallas Fed. Aguirre has over two decades of leadership experience directing large-scale community engagement initiatives.

Access to capital for the oil and gas industry is the main driver of uncertainties for our business. Each federal Reserve Bank has a nine-member board of directors. The current trends in customer demands on equipment versus the prices to pay unsustainable. The Dallas Fed releases its Texas Employment Forecast on a monthly basis in conjunction with the release of monthly Texas employment data.

There is an oversupply of oilfield services for onshore activity, which is reducing margins. Three members represent commercial banks, three represent the public, and three are appointed by the Board of Governors in Washington, D.C. It is only flared or vented out of necessity or accommodation to ephemeral situations. The future general business activity index fell from 2.5 in April to 15.6 in May.

The flaring of natural gas is wasteful and should not be allowed by the Texas Railroad Commission. Texas’ energy industry is a key contributor to carbon emissions, according to the authors. The Dallas Fed conducts the survey monthly to obtain a timely assessment of activity in the state’s service sector. Flaring is energizing environmentalists and encouraging investment funds to go ‘green,’ which will further constrain oil and gas investments.

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