Last week, the Dallas Federal Reserve released its quarterly Energy Survey. It collected input from 147 E&P’s and 50 service firms from Texas, New Mexico, and Louisiana. The major themes were operating vs. new drill breakevens, methane charges, the LNG permitting pause, and changes to employment/staffing levels. One of the essential datasets the agency collects is the Activity Index, which indicates if business activity, employment, capital expenditures, and other indicators increased, decreased, or remained unchanged compared to both the previous quarter and the quarter from the year prior. For Q1/24, the index value was two, suggesting that operators have effectively kept activity flat. This was driven by increased forecast capital expenditures in 2025 and increased wages/LOE versus Q4/23 but partially offset by slightly lower oil and gas production.
Figure 1. Dallas Federal Reserve Energy Survey Activity Index
Where Do Operators Think Prices Are Going?
One of the key takeaways from the survey is the operators’ predictions for WTI crude oil prices. They anticipate that prices will reach an average of $80 per barrel by the close of 2024, with forecasts spanning from $70 to $120. Looking further ahead, projections suggest that WTI will stabilize at $83 per barrel two years from now, rising to $90 per barrel five years out.
Despite recent weakness, gas prices are also forecast to rise in the long run (5 years out), likely due to a broader thesis regarding LNG demand. Gas prices are predicted to average $2.59 per Mcf by the end of 2024, with a longer-term expectation of $2.18 per Mcf two years down the line and $3.94 per Mcf five years from now. WTI and Henry Hub averaged ~$82/bbl and ~$1.44Mcf during the collection period.
Will the WTI Forecast Be Enough To Justify New Development?
Among the various surveys, the agency asks operators in multiple basins what the respective operating versus new drill breakevens are. New drill breakevens in Permian Delaware and the Midland are $64/bbl and $62/bbl, respectively. Note that prices only need to average over $38/bbl to cover operating expenses in the Permian. Among the higher breakeven plays from the survey (Other Permian), only $70/bbl is required. These figures indicate that operators forecasting a floor of $70/bbl and an average of $80-$90/bbl in the medium to long term should be more than enough to encourage and maintain drilling programs in the major unconventional plays.
Figure 2. Reported Operating and New Drill Breakevens by Play
How Realistic Are The Reported Breakevens From The Survey?
The survey’s breakeven aligns well with our internal breakeven calculations. Below, we include an example from the Permian Midland, where our breakevens range from $60/bbl to $70/bbl versus the operator-reported average breakeven of $62/bbl. We have defined breakeven as the flat WTI price needed to generate a two-year payout period, assuming a flat HH and NGL price deck.
Figure 3. Permian Midland 2-Year WTI Breakevens
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Key Takeaways
- Dallas Fed’s Q1/24 Energy Survey Activity Index was 2, indicating E&P activity was effectively flat versus the prior quarter.
- Dallas Fed survey respondents forecast WTI averaging $80/bbl by end-2024, with a $70–$120/bbl range during the survey period.
- Dallas Fed survey respondents project WTI at $83/bbl in two years and $90/bbl in five years.
- Dallas Fed survey respondents forecast Henry Hub at $2.59/Mcf by end-2024, $2.18/Mcf in two years, and $3.94/Mcf in five years.
- Dallas Fed survey respondents reported Permian Delaware and Permian Midland new drill breakevens of $64/bbl and $62/bbl, respectively.
- Dallas Fed survey respondents reported Permian operating breakevens near $38/bbl, indicating costs are covered well below new drill thresholds.
