The trend for higher oil and gas rigs has held up of late, and a report from the Dallas Federal Reserve branch in the week of September 30 showed that the energy sector’s activity rose in the third quarter. This past week’s report, the Dallas Fed Energy Survey, showed that oil and gas executives have responded positively about higher activities in the energy space.

The business activity index, again focusing solely on the energy market, rose to 26.7 in the third quarter. That is up from the second quarter’s 13.8 reading. All in all, this looks solid on the surface. Still, business executives have indicated to the Dallas Fed that several indicators remained in contractionary territory, and these continue to reflect persistent weakness in oil and gas employment and production.

For exploration and production (E&P) firms, oil and natural gas production fell for the third consecutive quarter — but at a slower rate than in previous quarters. The oil production index was −10.2, less negative than the prior −19.7 reading. The natural gas production index was −20.6, also less negative than the −24.7 reading last quarter.

Respondents continue to be bullish about oil and natural gas prices one-year ahead. Capital spending expanded in the third quarter.

Among oil and gas support services firms, the equipment utilization index rose a sharp 25 points, rising from slightly negative to 24.1. Their reading for prices received for services unfortunately dropped again, falling to −23.4.

Labor market indicators contracted on net this quarter, although the majority of firms reported no changes in jobs, hours or wages. The Dallas Fed said:

The employment index remained negative but advanced to −6.5, with 13 percent of firms noting net hiring and 20 percent noting net layoffs. The employee hours index and the wages and benefits index also rose but remained negative at −1.9 and −9.7, respectively.

Additional index readings and data were represented in the Dallas Fed report as follows:

• The capex component came in at a gain of 11.4, versus a prior reading of −9.3 in the second quarter.
• The index of expected exploration and production capital spending in 2017 remained positive at 21.8.
• Six-month outlooks improved, with the index coming in at 19.6, similar to 19.0 last quarter.
• The company outlook index for E&P firms came in at 29.5, compared with 11.2 for support service firms.
• Almost 62% believe oil prices will be higher than they currently are.
• Some 48% believe natural gas prices will increase.
• Comments from respondents suggest some increased uncertainty, though, with several raising concerns about continued oversupply and recent oil price weakness.

It is important to understand that this is an energy-focused sector report. The Dallas Fed showed that the data were collected between September 14 and September 22. It should also be noted that 154 energy firms responded to the survey, with responses coming from 70 exploration and production firms and 84 responses coming from oil and gas support services firms.

A poll of 154 respondents might not be large enough for a national average, but within a sector it should offer a rather clear snapshot of general conditions.

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