Oil and gas executives across America’s energy heartland are pulling back on investment plans at an alarming rate. Invest with Domestic Drilling and Operating! The Dallas Fed Energy Survey reveals that more than a third of exploration and production leaders have significantly delayed capital decisions, citing persistent uncertainty about oil prices and escalating production costs. Texas, Louisiana, and New Mexico witnessed declining activity through the third quarter of 2025, with the business activity index climbing modestly from -8.1 to -6.5—yet remaining firmly in contraction territory.

Exploration and production firms face particularly challenging conditions. Approximately 43% of E&P companies anticipate reduced capital expenditure compared to the same period last year, while the company outlook index plummeted from -6.4 in the second quarter to -17.6, signaling deepening pessimism throughout the sector. The situation has grown more complex as 78% of exploration and development executives report postponing investment decisions specifically due to oil price volatility and rising operational expenses. Crude oil markets have struggled consistently this year, declining nearly 9% year-to-date while failing to sustain prices above $70 since June.

This widespread caution reflects fundamental shifts in industry economics. Companies that once embraced aggressive growth strategies now prioritize capital preservation and financial flexibility over expansion. The confluence of market uncertainty, cost pressures, and operational challenges has created an environment where even seasoned industry veterans are reassessing their approach to capital allocation and long-term planning.

Executives Warn of Declining Oil and Gas Activity

What happens when an industry that powers the American economy begins to contract? Recent data from the third quarter of 2025 provides a sobering answer. The oil and gas sector experienced an accelerated decline that extends troubling trends from earlier in the year, with executives voicing unprecedented concern about operational realities and future viability.

Dallas Fed survey shows negative business activity index

The Dallas Fed Energy Survey presents a stark portrait of industry conditions. While the business activity index improved marginally from -8.1 in the second quarter to -6.5 in the third quarter, negative readings signal continued contraction. This represents a dramatic reversal from the positive 3.8 reading recorded in the first quarter of 2025.

Market volatility has reached levels that challenge even experienced operators’ planning capabilities. “Commodity pricing seems impossible to predict with daily market swings over 5 percent up or down being normal for both natural gas and crude oil,” observed one executive in the survey comments. The outlook uncertainty index remained stubbornly high at 44.6, declining only slightly from 47.1 in the previous quarter, reflecting the persistent unpredictability plaguing decision-makers.

Production indices for oil and gas remain in decline

Production metrics tell an equally concerning story. The oil production index held steady at -8.6, while the natural gas production index remained at -3.2. These figures extend the production declines that began in the second quarter, when oil production plummeted from 5.6 to -8.9 and natural gas dropped from 4.8 to -4.5.

The International Energy Agency warns that global oil and gas field output declines are accelerating at an unprecedented pace. Without sustained investment, the world faces the equivalent loss of Brazil and Norway’s combined oil production annually. Perhaps most striking, the IEA emphasizes that “only a small portion of upstream oil and gas investment is used to meet increases in demand while nearly 90% of upstream investment annually is dedicated to offsetting losses of supply at existing fields”.

Sentiment worsens across E&P and service firms

The company outlook index collapsed from -6.4 to -17.6 in the third quarter, revealing deepening pessimism across the sector. Both exploration and production firms and oilfield service companies reported deteriorating conditions, though service companies bore the brunt of the downturn.

Oilfield services firms encountered particularly harsh realities:

• Equipment utilization index dropped from -4.6 to -13.0
• Operating margins remained deeply negative at -31.8
• Prices received for services declined from -17.7 to -26.1

Exploration and production companies faced their own cost challenges. Finding and development costs surged from 11.4 to 22.0, while lease operating expenses climbed from 28.1 to 36.9. One oilfield executive captured the industry’s predicament: “A vibrant oilfield services sector is critical if and when the U.S. needs to ramp up production. Right now we are bleeding”.

Employment data reinforces these operational challenges. Though the aggregate employment index improved from -6.6 to -1.5, it remained negative, while the employee hours index stayed at -3.7. These indicators point to continued workforce reductions and cautious hiring practices throughout the industry.

Capital expenditure plans reflect this cautious environment. Approximately 43% of E&P firms anticipate decreased spending compared to the same quarter last year. Another executive summarized the prevailing sentiment: “The downward pressure on oil prices coupled with continued tightness in finding qualified labor in remote locations continues to pressure profitability and dividends”.

Firms Delay Investments Amid Price and Policy Uncertainty

The oil and gas sector faces a capital allocation crisis unlike any seen in recent years. What happens when an industry built on long-term investments confronts unprecedented short-term volatility? The answer emerges clearly through executive decision-making patterns that reveal deep structural concerns about market stability and operational economics.

78% of executives report delayed investment decisions

Investment hesitation has reached epidemic proportions throughout the oil and gas industry. The Dallas Fed survey shows that 78% of exploration and production executives have delayed capital commitments due to current market uncertainties. The breakdown tells a compelling story: 36% report “significantly delayed” decisions while 42% indicate “slightly delayed” investments. Only 22% of executives maintain unchanged investment timelines.

This pattern carries serious implications beyond individual company operations. Industry analysts project 2025 will mark the first year-on-year decline in global upstream development spending since 2020. Should oil prices drift toward $50 per barrel territory, approximately 1.2 million barrels per day of production capacity could face elimination by 2026.

Uncertainty around oil prices and production costs cited

Two critical factors drive executive reluctance: volatile oil pricing and escalating production expenses. These concerns have intensified as crude markets remain trapped below $70 per barrel since June.

Academic research validates these conservative responses. A comprehensive study of 4,017 energy companies over 26 years confirms that both oil price uncertainty and economic policy uncertainty substantially reduce corporate investment levels. Oil-producing nations experience these effects more acutely than consuming countries. The underlying economic principle holds that when investments cannot easily be reversed, uncertainty increases the value of delaying capital commitments.

Current market conditions exemplify this theory perfectly. At $65 per barrel, companies maintain viable operations without triggering emergency budget cuts. However, they increasingly favor financial flexibility and shareholder returns over growth capital expenditure.

Small vs large E&P firms show different delay patterns

Company size creates distinct investment behavior patterns. Small exploration firms producing fewer than 10,000 barrels daily show greater willingness to proceed with projects compared to their larger counterparts. Specifically, 24% of small E&P executives report no investment delays versus just 12% of large firm executives.

This difference reflects contrasting financial positions rather than different risk tolerance levels. One executive explained the challenge: “The low price for natural gas is crushing current cash flow. For smaller independents, cash flow is what feeds future investment”. Large companies demonstrate more cautious capital deployment strategies, with significantly more executives expecting decreased spending compared to those planning increases.

The volatile environment has created what one industry leader described as “decision paralysis” among certain operators. Oil prices sustained below $60 per barrel for extended periods would likely trigger more dramatic budget adjustments across the entire sector.

Rising Costs Squeeze Margins Across the Sector

Cost pressures have reached a critical juncture for oil and gas operators throughout the region. Dallas Fed data reveals an escalating expense environment that continues to erode profit margins, adding substantial strain beyond the price volatility already challenging the industry.

Input costs and lease operating expenses increase

Oilfield services firms face mounting expense pressures, with the input cost index surging from 23.9 to 30.9. Exploration and production companies confront similar challenges as their lease operating expenses index climbed dramatically from 25.6 to 38.7, reflecting accelerating day-to-day operational costs across the sector.

These cost increases represent more than temporary market fluctuations. Following a decade of relative price stability through 2020, supply chain expenses have risen at a compound annual growth rate of 5% over the past five years. Recent U.S. steel tariffs have driven oil country tubular goods costs up 25%–35%, with these materials representing 15%–25% of total drilling expenses.

Operating margins for service firms remain negative

The margin squeeze has become particularly severe for service companies. Operating margins deteriorated further, with the index falling from -17.8 to -21.5, while oilfield services firms saw their margin index plunge to -33.4—a level that signals acute financial distress across the service sector.

Supply chain disruptions compound these challenges. Nearly half of operators (47%) report “significantly negative” impacts from supply-chain issues, while another 47% cite “slightly negative” effects. Most executives expect prolonged recovery periods, with 66% anticipating it will take more than a year to resolve current supply-chain challenges.

Finding and development costs surge for E&P firms

Exploration and production companies encounter their own cost escalation problems. The finding and development costs index increased from 11.5 to 17.1, indicating higher expenses for discovering and developing new reserves. These F&D costs have doubled in 2023-24 from the $6.00/boe range prevalent during 2016-21.

Production economics face additional headwinds as field maturity increases. The share of mature and marginal oil fields will grow from 20% to over 40% by 2050, driving production costs higher. Mature, late-life assets can cost up to $15.00 per barrel more to operate than younger assets, creating ongoing expense pressure for operators.

At $60 oil prices, these cost realities become particularly challenging. Some 61% of executives forecast production would decline slightly at that price point, demonstrating how narrow profit margins have become across the current operating environment.

Executives Shift Focus to International Shale Opportunities

The mounting economic pressures at home have sparked a strategic pivot among American oil producers. International shale development now represents a compelling alternative for companies seeking more favorable economics than domestic operations can currently provide.

77% expect international shale to become viable

More than three-quarters of executives surveyed by the Dallas Fed anticipate that shale oil drilling will become commercially viable in international locations outside the United States, Canada, and Argentina within the next decade. This expectation signals a fundamental recalibration of industry strategy as companies seek reserves that can generate sustainable returns at current price levels. The shift represents more than geographic expansion—it reflects recognition that traditional U.S. shale economics may no longer support the growth rates investors have come to expect.

Examples include Turkey, UAE, and Bahrain ventures

Several prominent ventures demonstrate this international momentum. Turkish national oil company TPAO partnered with Continental Resources in March to develop shale fields in Turkey’s Diyarbakir Basin, targeting what estimates suggest could be a 6.1 billion barrel reserve. Houston-based EOG Resources has moved aggressively into both the United Arab Emirates and Bahrain, successfully drilling horizontal wells that have already produced oil to the surface in UAE shale plays. EOG’s Bahrain operations encompass both gas exploration and expanded refinery capabilities.

These international projects offer attractive economics compared to mature U.S. shale plays. Companies can often secure more favorable fiscal terms while accessing reserves that require lower breakeven prices than their domestic counterparts.

Domestic $60 oil no longer sustainable for many

The economics driving this international focus are stark. “We have begun the twilight of shale,” noted one executive, adding “the U.S. isn’t running out of oil, but she sure is running out of USD 60.00 per barrel oil”. Industry analysis indicates that U.S. crude needs to stay above $65 per barrel to maintain viable shale production.

This economic reality forces companies to seek opportunities where lower-cost operations can generate acceptable returns even if oil prices remain subdued. International shale development increasingly represents not just an opportunity for growth, but a necessity for long-term survival in a lower-price environment.

Price Forecasts Reflect Modest Optimism for 2025

Despite persistent headwinds, energy market forecasts offer cautious hope for price recovery. Industry analysts and Dallas Fed survey participants provide price projections that could influence investment decisions across the sector.

WTI expected to average $63 by year-end 2025

West Texas Intermediate crude prices are projected to stabilize around $64.65 per barrel for 2025, according to a Reuters poll of 31 analysts. The Energy Information Administration takes a more conservative approach, forecasting WTI spot prices will decline to approximately $59.00 per barrel in the fourth quarter, with further weakness expected around $50.00 per barrel in early 2026. J.P. Morgan analysts project WTI crude will average $63.00 per barrel through 2025, while BMI expects front-month WTI prices to average $65.00 per barrel this year.

These forecasts suggest the market expects prices to remain within the challenging $60-65 range that has prompted widespread investment delays among exploration and production companies.

Natural gas forecasted at $3.30 per MMBtu

Henry Hub natural gas prices are anticipated to reach $3.30 per MMBtu by year-end 2025, according to Dallas Fed survey participants. Standard Chartered’s projection aligns closely at $3.20 per MMBtu for the final quarter. The EIA expects natural gas spot prices to climb from $2.91 per MMBtu in August to $3.70 per MMBtu in the fourth quarter.

Long-term expectations show gradual price recovery

Market participants maintain measured optimism about longer-term price trajectories. Executives anticipate WTI prices of $72.00 per barrel two years from now, eventually reaching $77.00 per barrel five years from now. Natural gas projections follow a similar upward path, with prices expected at $4.12 per MMBtu in two years and $4.50 per MMBtu in five years.

These longer-term projections suggest industry confidence in eventual market stabilization, though the timeline for meaningful price recovery extends well beyond the immediate investment horizon that concerns most exploration and production companies today.

Conclusion

America’s oil and gas industry stands at a crossroads that will define its trajectory for the next decade. The Dallas Fed survey data reveals an industry grappling with fundamental economic shifts—where 78% of executives postponing investment decisions represents more than temporary market hesitation. These delays signal a recalibration of business models that have driven domestic energy production for the past decade.

Market dynamics have shifted beyond typical cyclical patterns. Exploration and production companies face a perfect storm of rising operational costs, squeezed margins, and persistent price volatility that challenges traditional investment approaches. Oilfield service firms bear the brunt of this transition, with equipment utilization rates reflecting the broader industry contraction that extends far beyond quarterly fluctuations.

The industry’s response reveals both pragmatism and adaptability. Executive interest in international shale development indicates strategic thinking about long-term sustainability rather than panic-driven decisions. WTI crude projected to recover to $77 per barrel over five years provides a foundation for patient capital allocation, though current sub-$70 prices demand immediate operational adjustments.

What emerges is an industry in transition rather than decline. Production companies are learning to operate effectively in a lower-price environment while maintaining the technological capabilities that revolutionized American energy independence. Supply chain challenges and workforce constraints present near-term hurdles, yet they also create opportunities for companies that can adapt their operational strategies.

The coming years will separate industry leaders from followers. Companies with strong balance sheets, efficient operations, and strategic vision will emerge stronger from this period of uncertainty. Those clinging to outdated business models may find themselves increasingly marginalized in a sector where $60 oil is no longer guaranteed to generate adequate returns.

This industry transformation ultimately reflects broader economic realities. Energy markets are maturing, and the easy gains from the shale revolution are giving way to more disciplined approaches to capital allocation and operational efficiency. The sector’s ability to adapt will determine not only individual company success but America’s continued energy leadership in an increasingly competitive global market.