By Kennedy Maize
“‘Drill, baby, drill’ is nothing short of a myth and populist rallying cry. Tariff policy is impossible for us to predict and doesn’t have a clear goal. We want more stability.”
That comment comes from a purposely unnamed oil and gas executive commenting on the state of the industry come in the quarterly survey by the Federal Reserve Board of Dallas. The comments on the Trump administration putative love for oil and gas production. The same exec added, “The administration’s chaos is a disaster for the commodity markets” and “Tariff policy is impossible for us to predict and doesn’t have a clear goal. We want more stability.”
That individual was not alone in disdain for the leadership coming from the White House.
- “There cannot be ‘U.S. energy dominance’ and $50 per barrel oil; those two statements are contradictory. At $50-per-barrel oil, we will see U.S. oil production start to decline immediately and likely significantly (1 million barrels per day plus within a couple quarters). This is not ‘energy dominance.’ The U.S. oil cost curve is in a different place than it was five years ago; $70 per barrel is the new $50 per barrel.”
- “The administration’s tariffs immediately increased the cost of our casing and tubing by 25 percent even though inventory costs our pipe brokers less. U.S. tubular manufacturers immediately raised their prices to reflect the anticipated tariffs on steel. The threat of $50 oil prices by the administration has caused our firm to reduce its 2025 and 2026 capital expenditures. ‘Drill, baby, drill’ does not work with $50 per barrel oil. Rigs will get dropped, employment in the oil industry will decrease, and U.S. oil production will decline as it did during COVID-19.”
- “I have never felt more uncertainty about our business in my entire 40-plus-year career.”
- “Uncertainty around everything has sharply risen during the past quarter. Planning for new development is extremely difficult right now due to the uncertainty around steel-based products. Oil prices feel incredibly unstable, and it’s hard to gauge whether prices will be in the $50s per barrel or $70s per barrel. Combined, our ability to plan operations for any meaningful amount of time in the future has been severely diminished.”
- “Oil prices have decreased while operating costs have continued to increase. To stimulate new activity, oil prices need to be in the $75-$80 per barrel range. Natural gas takeaway in the Permian Basin has not improved for any of my properties, and I am still getting paid slightly negative to barely positive prices for natural gas. Last month I was paid 29 cents per million cubic feet. I feel very negative about the short-term outlook for the oil and gas business.”
- “The increased drilling efficiency and capital discipline by the operator community is undermining the ‘drill, baby, drill.'”
- “Uncertainty around tariffs and trade policy continues to negatively impact our business, both for mid- to long-term planning and near-term costs. Because of trade tension, especially with Canada, a large operator requested we look to potentially move manufacturing out of the U.S. to support their work in Canada and other international markets.”
- The increased drilling efficiency and capital discipline by the operator community is undermining the “drill, baby, drill.”
The Dallas Fed’s latest quarterly survey aims “to obtain a timely assessment of energy activity among oil and gas firms located or headquartered in the Eleventh District. Firms are asked whether business activity, employment, capital expenditures and other indicators increased, decreased or remained unchanged compared with the prior quarter and with the same quarter a year ago.”
The Federal Reserve Bank has 12 regions. The 11th consists of Texas, northern Louisiana, and southern New Mexico, often referred to as the “Oil Patch.”
The Fed survey ran from March 12-20, collecting data from 130 firms that responded. Of those, 88 were exploration and production firms and 42 were oilfield services firms. They were asked whether “business activity, employment, capital expenditures and other indicators increased, decreased or remained unchanged compared with the prior quarter and with the same quarter a year ago.”
The Fed staff then uses the responses to calculate an index for each indicator “by subtracting the percentage of respondents reporting a decrease from the percentage reporting an increase. When the share of firms reporting an increase exceeds the share reporting a decrease, the index will be greater than zero, suggesting the indicator has increased over the previous quarter. If the share of firms reporting a decrease exceeds the share reporting an increase, the index will be below zero, suggesting the indicator has decreased over the previous quarter.”
Among the conclusions: “The company outlook index decreased 12 points to -4.9, suggesting slight pessimism among firms. Meanwhile, the outlook uncertainty index jumped 21 points to 43.1.”
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