Business activity for Oil & Gas producers in Texas and parts of Louisiana and New Mexico rose in fourth-quarter 2020, moving into positive territory for the first time since first-quarter 2019, according to a quarterly survey by the Dallas Federal Reserve Bank. Moreover, nearly half of the survey respondents expect their firms' capital spending to increase in 2021.

The fourth-quarter jump in business activity comes after several miserable months for the Oil & Gas Production Industry, which has been plagued by low prices amid the fall in oil-products demand caused by the COVID-19 pandemic.

The Federal Reserve Bank of Dallas covers the Eleventh Federal Reserve District, which includes Texas, northern Louisiana and southern New Mexico. On December 30, the reserve bank released the results of its quarterly Dallas Fed Energy Survey, which comprised the responses of 146 energy firms, including 97 exploration and production (E&P) firms and 49 oilfield services firms.

The survey's business activity index rose from -6.6 in the third quarter to +18.5 in the fourth quarter, with the increase driven by both E&P and oilfield service firms. Oil production stabilized after three quarters of decline, with the index rising from -15.4 to +1.0 in the fourth quarter, while the natural gas production index increased eight points to -2.1. The near-zero readings for both indexes indicate oil and gas production was fairly flat in the fourth quarter, the reserve bank said.

The outlook in the oil patch began to show signs of improvement in the third quarter of 2020. For more information, see October 12, 2021, article - Dallas Fed Survey Shows Less Gloom, but Still no Boom, in the Oil Patch.

The index for capital expenditures by E&P firms moved into positive territory at +12.5, up from -16.4 in the third quarter, while the index for capital expenditures by oilfield services firms increased but remained negative, rising from -35.1 to -6.2.

"This suggests that, while capital spending continued to decline, the pace of decline slowed notably in the fourth quarter," the reserve bank said.

Meanwhile, more of the survey respondents expect their firms' spending to increase rather than decrease in 2021. Thirty-five percent of the executives said they expect capital spending will slightly increase, while an additional 14% expect a significant increase.

Industrial Info is tracking nearly $50 billion worth of high- and medium-probability Oil & Gas Production projects that are expected to kick off this year in the U.S. High-probability projects are assessed as having an 81-99% likelihood of moving forward, while medium-probability projects have a 70-80% likelihood.

Half of the E&P respondents said they expected to increase capital expenditures this year, while 46% of the oilfield services respondents said they expected an increase. Executives were asked to provide the WTI crude oil price they used for planning their capital expenditures in 2021. The average response was $44 per barrel.

The results are an improvement over those of a year earlier, when 40% of the E&P respondents expected to increase capex in 2020, and just 24% of the oilfield services respondents expected capex to grow. For more information, see January 2, 2020, article - A Tale of Two Segments: In Dallas Fed Survey, E&P Firms Report Brighter Fourth Quarter than Oilfield Services Companies.

In the latest survey, oil executives indicated they expect a sharp reduction in the number of publicly listed U.S. E&P firms amid a wave of mergers and acquisitions. There are about 60 publicly listed independent E&P firms in the U.S. Forty-seven percent of the executives said they think 37 to 48 of those firms would survive by yearend 2022.

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