(CN) – U.S. oil and gas executives painted a bleak picture of their industry’s prospects in a new survey from the Federal Reserve Bank of Dallas, describing a “bloodbath” from the recent plunge in oil prices and the ongoing coronavirus pandemic.
“This is the bust we all predicted,” one anonymous executive told the Dallas Fed.
Another said, “It is looking to be a bloodbath for most firms.”
For an industry that’s preferred more genteel terms like “low price environment” and “downturn” in recent years, the quick shift to “bust” and “bloodbath” is notable.
And it’s accurate.
In the survey released Wednesday, the Dallas Fed’s business activity index for the oil sector plunged from minus 4.2 in the fourth quarter of 2019 to minus 50.9 in the first quarter of this year, signaling a “significant contraction.” The index is a broad measure of oilfield activity in Texas, New Mexico and Louisiana.
Oil companies moved swiftly this month to slash capital spending and scale back drilling after a collapse in oil markets prompted by a price war between Russia and Saudi Arabia. The crash has been made significantly worse by a drop in global oil demand due to the coronavirus pandemic.
Analysts at Norway-based Rystad Energy said Wednesday that global oil demand would likely fall by almost 16 million barrels per day in April compared to the year before, a 16% drop from previous forecasts that the firm called “shocking.”
“With travel restrictions, quarantine obligations and new government policies being announced daily around the world, we are making substantial frequent updates to most of our estimates,” the firm said.
With the U.S. benchmark for oil prices now hovering below $25 per barrel, companies have moved to cut thousands of jobs, with oilfield service firms taking a particularly hard hit.
“The average breakeven price for new wells was a little under $50, and current oil prices are well below almost all of the responses,” Michael Plante, an economist at the Dallas Fed, said in a statement accompanying the survey. “Likewise, based on the survey responses, many firms will find it difficult to cover operating expenses at current prices.”
Halliburton announced plans this month to furlough about 3,500 workers at the oilfield service giant’s Houston headquarters, while Schlumberger – the world’s largest services firm – is expected to carry out layoffs after announcing it would cut its budget by up to 30%, as the Houston Chronicle has reported.
In a sign that companies continue to cut jobs, an index in Wednesday’s survey measuring employment levels dropped from minus 10 in the fourth quarter to minus 24 this quarter. Executives reported cutting work hours and wages as well, with just over half of those surveyed telling the Dallas Fed they expected their workforce numbers to see an annual drop by the end of this year.
Executives also reported an “extremely pessimistic” outlook for the future, the Dallas Fed said.
“What is the difference between a Texas oilman and a pigeon?” another anonymous executive asked in the survey’s comments section. “The pigeon can put down a deposit on a new Mercedes.”