A survey conducted by the Dallas Federal Reserve found that the oil and gas outlook for the region has improved “dramatically” since the third quarter.
The Fed found that the business activity index for the Eleventh District rose to 40.1 as of the end of December from a 26.7 reading in the third quarter.
The Fed also found that several indicators, including employment and production indicators, expanded on a quarterly basis for the first time in 2016.
“Outlooks also improved, despite some skepticism about recent oil producer agreements,” the Dallas Fed said.
The Fed found that oil and gas production stopped declining in the fourth quarter after tumbling throughout 2016.
The Fed’s oil production index surged nearly 20 points to 9.0 while the natural gas production index rose to 3.1, up from -20.6 in the third quarter.
The equipment utilization index for oilfield services firms posted another quarter of gains after rising to a 35.9 reading.
The index of prices received for services climbed from -23.4 to 6.8, marking that index’s first positive reading for 2016.
The Fed found that measures of oil and gas labor market conditions turned positive for the first time in 2016.
However, a majority of respondents to the Fed’s survey said that their headcounts remained unchanged as of the end of the fourth quarter.
The Fed’s employment index came in at a 3.4 reading, with 18 percent of firms reporting net hiring and 15 percent reporting net layoffs.
Three-quarters of respondents to the Fed’s survey said they have not changed their expectations about employment levels.
Indexes of wages and benefits also turned positive and rose to a 10.3 reading during the fourth quarter.
The Fed found that measures of nonlabor expenses “suggested some price pressure.”
Executives at oilfield services firms told the Fed that they had seen higher input costs during the fourth quarter, with the relevant index rising to 13.1 from -3.6 in the third quarter.
The Fed found that six-month outlooks “improved markedly” with the agency’s company outlook index rocketing up by 38 points to a 57.1 reading.
Capital expenditures rose at a faster quarter-over-quarter pace in the fourth quarter along with E&P firm’s expectations of 2017 capital spending.
The Fed found that survey respondents were more bullish than last quarter about oil prices one-year ahead, but were mixed on natural gas prices.
The Fed found that 71 percent of respondents expect higher oil prices a year from now and 50 percent expect higher gas prices.
Of the 142 respondents, 32 respondents said they have revised their drilling activity outlook up while 65 respondents said their outlook was unchanged.
Fifty-eight respondents said they have revised their oil price outlook upwards while 42 respondents said their price outlook remains unchanged.
While anticipated production cuts from OPEC and non-OPEC producers are boosting crude prices, respondents to the Fed’s survey expressed skepticism about the production plans.
Of the 142 oil and gas firms that responding to the survey, 58 percent of respondents said they do not believe that OPEC will be able to enforce its production cut target.
The majority of respondents now believe that the oil market will re-balance during the third quarter of 2017.