Oil and gas activity declined in the third quarter driven mainly by a drop in oilfield services, according to energy executives responding to a survey by the Dallas branch of the US Federal Reserve Bank.
The survey’s business activity index fell from -0.6 to -7.4 in the third quarter, with the index measuring oilfield services activity diving to -21.8 from 6.6, indicating a contraction in the sector.
The quarterly report surveyed 163 oil and gas firms located or headquartered in Texas, southern New Mexico and northern Louisiana and which operate regionally, nationally or internationally. Data were collected between 11-19 September.
"Among oilfield services firms, the equipment utilization index plummeted 27 points to -24.0 in the third quarter, its lowest reading since 2016 and suggestive of a large contraction in equipment utilization," the report said. "Meanwhile, the prices received for services index fell further into negative territory, to -18.5 from -12.1, suggesting a further decline in oilfield services prices."
The company outlook for oilfield services firms remained negative at -14.8, while the aggregate company outlook improved to zero, suggesting an unchanged outlook during the third quarter, the report said.
"Our business is very challenging. E&P companies have pulled back on spending and continue to pressure service company prices. I expect there will be a number of insolvent companies looking for help in the next six months," one executive commented.
Exploration and production executives said oil and gas production grew for the 12 th consecutive quarter, with the index for oil falling to 15.7 in the third quarter from 17.4 in the previous quarter. The natural gas production index, however, fell by 6.9 to 6.5.
About 13% of respondents said that investor pressure to generate free cash flow was one of the main constraints limiting near-term growth. Around 42% said low crude oil and natural gas prices were a constraint with 20% of executives saying limited access to capital and credit was a limitation.
"Overall sentiment is very negative due to low natural gas prices and lack of available funding for oil and gas exploration. Investors have been hard hit by catastrophic declines in the price of oil and gas securities," another executive commented. "Additionally, many oil shale projects are failing to meet production projections. Oil service companies have no pricing power [and are] delivering services at rock bottom levels. Further cost declines will not be forthcoming. It seems no one has any money for oil and gas projects. Lack of Wall Street participation in oil is very apparent."
Around 28% of executives expect the number of US oil rigs to bottom out by the fourth quarter 2019, with only 2% believing that the figure has already bottomed out. About 26% of respondents expect the count to bottom out after the second quarter 2020.