Oil and gas activity in the U.S. Eleventh District slipped into contraction in the second quarter of 2025, according to the Dallas Fed Energy Survey released Wednesday, with firms citing falling production, deteriorating service margins, and deepening uncertainty.
The survey’s headline business activity index dropped from 3.8 in Q1 to -8.1, marking a return to negative territory. Executives pointed to declines in both oil and gas production, with the oil production index falling to -8.9 and the natural gas production index to -4.5, which represents a sharp reversal from moderate growth earlier this year.
Oilfield service providers reported escalating cost pressure, with the input cost index rising from 30.9 to 40.0. Margins compressed further, as the operating margin index deteriorated to -33.4 from -21.5, and the prices received for services index flipped negative, dropping from 7.1 to -17.7. Equipment utilization also softened.
Among E&P firms, cost inflation slowed. The finding and development cost index slipped to 11.4, while the lease operating expense index fell to 28.1, suggesting a slower pace of cost growth.
Labor demand declined across the board. The employment index dropped to -6.6, and the employee hours index fell to -5.1, even as the wages and benefits index remained positive at 10.3.
Outlook sentiment remained pessimistic. The company outlook index came in at -6.4, and the uncertainty index rose to 47.1, the highest since 2020.
Producers now expect WTI to average $68 per barrel at year-end 2025, down sharply from prior forecasts. The expected Henry Hub gas price is $3.66/MMBtu.
The results reflect mounting caution across the shale patch amid falling prices, rising costs, and intensifying regulatory and tariff-related headwinds.
By Charles Kennedy for Oilprice.com
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