DALLAS FED ENERGY SURVEY: EXPANSION IN OIL AND GAS ACTIVITY ACCOMPANIES GROWING COST PRESSURES

The following information was released by the Federal Reserve Bank of Dallas:

Oil and gas activity increased in second quarter 2026, according to oil and gas executives responding to the Federal Reserve Bank of Dallas Energy Survey.

The business activity indexthe survey's broadest measure of conditions facing Eleventh District energy firmsjumped from 21.0 in the first quarter to 46.1 in the second quarter, marking the strongest reading since second quarter 2022. The survey was conducted June 917 as the U.S. and Iran negotiated a memorandum of understanding (MoU) about ending hostilities.

Activity increased at its fastest pace in several years but was also accompanied by mounting cost pressures. Input costs for oilfield services firms jumped dramatically, for example, with roughly two-thirds of firms reporting increases and not a single firm reporting decreases, said Michael Plante, an assistant vice president at the Dallas Fed.

Key takeaways:

Oil production advanced modestly in the second quarter, while natural gas production saw only minimal gains. The oil production index rose from zero to 15.0, while the natural gas production index remained relatively unchanged at 3.7.

Costs accelerated across the board. The input cost index for oilfield services firms surged from 34.9 to 64.4, with no firms reporting decreasing costs. Finding and development costs rose from 22.3 to 40.0, while lease operating expenses increased from 30.0 to 43.7.

Oilfield services firms reported improvement across most indicators. The operating margin index jumped from -7.0 to 52.2, the first positive reading in many quarters. The equipment utilization index remained positive at 31.9, while prices received for services advanced from 9.3 to 24.5.

Capital spending strengthened considerably. The capital expenditures index advanced from 21.2 to 40.9 during the second quarter, with 49 percent of firms reporting increased spending. However, the index for expected capital expenditures next year was 0, suggesting cautious long-term planning despite current spending increases.

The supplier delivery time index rose sharply from 4.5 to 31.7, with 36 percent of firms reporting longer delivery times for materials and equipment.

Survey asks about U.S. production growth potential in 2027 and assesses constraints to activity

Executives see modest production growth potential in 2027 even if oil prices were to be substantially above current levels. Across different price scenarioswhether $100, $125, or $150 per barrelthe most common expectation was for U.S. crude oil production to grow by more than 0.25 but not more than 0.50 million barrels per day, or about 2 to 4 percent higher than recent levels, Plante said.

Additional takeaways from the special questions:

For Permian-focused operators, natural gas takeaway capacity and policy/regulatory issues emerged as the most frequently cited significant constraints to drilling activity over the next 12 months.

Permian gas takeaway constraints are expected to ease in 2027. Among firms whose activity is primarily focused in the Permian Basin, most executives expect natural gas takeaway constraints to be fully resolved sometime in 2027. The most selected response was first quarter 2027, chosen by 25 percent of respondents.

For firms primarily focused outside the Permian Basin, few reported experiencing significant hindrance across all listed constraints (produced water management, natural gas takeaway capacity, labor, availability of rigs, policy/regulatory) which would limit drilling activity over the next 12 months.

About two-thirds of respondents think WTI crude oil would peak at $125 per barrel or less if the military conflict in Iran continues through year-end.

Views on when the Iran conflict would be resolved evolved during survey period. Survey responses were divided between those submitted before when the U.S. and Iran reached a memorandum of understanding (MoU) (on or before June 14) and those after (June 15 or later). While third quarter 2026 was the most frequently selected option overall for when the conflict would end, a larger share selected second quarter 2026 following the announcement of the MoU.

Iran imposing permanent restrictions on Persian Gulf exports seen as unlikely. Fifty-seven percent of respondents say permanent restrictions by Iran on crude exports from the Persian Gulf are unlikely, while 33 percent consider them somewhat likely. Only 10 percent characterize such restrictions as very likely.

The survey samples oil and gas companies headquartered in the Eleventh Federal Reserve District, which includes Texas, southern New Mexico and northern Louisiana. Many have national and global operations.

Data were collected June 917, 2026, and 127 energy firms responded. Of the respondents, 82 were exploration and production firms, and 45 were oilfield services firms.