The oil and gas sector in the Eleventh District experienced a slight uptick in activity during the first quarter of 2025, according to the latest Dallas Fed Energy Survey. Published by the Federal Reserve Bank of Dallas, the quarterly report revealed that the business activity index – the survey’s broadest gauge of industry conditions – remained in positive territory, though it fell from 6.0 in Q4 2024 to 3.8 in Q1 2025. This suggests that while growth continues, it has slowed.
The Dallas Fed Energy Survey, which gathered insights from 130 energy firms between March 12 and March 20, showed mixed outlooks across the industry. The company outlook index dipped 12 points to -4.9, indicating rising concern among firms. Furthermore, the outlook uncertainty index jumped sharply by 21 points to 43.1, suggesting growing apprehension about market stability and business conditions. Despite these concerns, both oil and natural gas production saw slight gains. The oil production index climbed from 1.1 to 5.6, while the natural gas production index turned positive, increasing from -3.5 to 4.8.
Costs Climb Across the Board as Margins Narrow
A consistent trend throughout the report was the increase in operational costs across the oil and gas industry. Oilfield services firms reported that their input cost index rose significantly, from 23.9 in Q4 2024 to 30.9 in Q1 2025. Exploration and production (E&P) companies also faced rising expenses, with the finding and development cost index increasing from 11.5 to 17.1, and lease operating expenses moving up from 25.6 to 38.7.
Despite higher costs, equipment utilization among oilfield service providers remained nearly flat, with the index barely changing at -4.8. More notably, the operating margin index fell from -17.8 to -21.5, indicating a faster rate of margin compression. However, there was a positive shift in the prices received for services index, which swung from -13.0 to 7.1. This turnaround may offer some relief to service firms hoping to offset narrowing profit margins.
Employment Levels Hold Steady Amid Growing Uncertainty
Employment in the energy sector showed signs of stagnation. The aggregate employment index dropped from 2.2 in the fourth quarter of 2024 to zero in the first quarter of 2025, signaling no net change in job numbers. Meanwhile, both the aggregate employee hours index (0.7) and the aggregate wages and benefits index (21.6) remained largely unchanged.
The Dallas Fed Energy Survey, conducted quarterly, gathers data from energy companies headquartered in or operating within the Eleventh Federal Reserve District. Firms are asked to report changes in business activity, employment, capital expenditures, and other indicators. The resulting indices provide a pulse on regional energy trends by subtracting the percentage of firms reporting a decline from those reporting a rise.
This quarter’s data underscores a cautious optimism in the oil and gas sector—one tempered by rising operational costs and heightened uncertainty about the future. While modest production gains were recorded, companies appear to be grappling with shrinking margins and maintaining workforce levels amid volatile market conditions.
