�鶹ֱ��

Oilfield service firms are reporting rising input costs far more often than rising prices, and contract language may determine who absorbs the difference.

Oilfield service firms responding to the Dallas Fed Energy Survey for the third quarter of 2026 reported substantially broader increases in input costs than in the prices they received. The input-cost index was 60.4, compared with a prices-received index of 16.3. Each index represents the percentage of respondents reporting an increase minus the percentage reporting a decrease.

The Dallas Fed released the results on September 30, based on responses collected September 16 through 24. Forty-two oilfield service firms responded, out of 125 energy companies overall, so it is a modest sample drawn from the Dallas Fed’s Eleventh District, which covers Texas, northern Louisiana and southern New Mexico. Still, the difference between the cost and price indexes is substantial.

Baker Hughes reported 598 active rigs in the United States for the week ending October 2. The count slipped by one from the prior week, the first weekly decline in six weeks, but remained 49 rigs, or approximately 9 percent, above the comparable week a year earlier. Oil rigs rose by one to 456, their highest level since May 2025, while gas rigs fell by two to 133. Nine rigs were classified as miscellaneous.

The Dallas Fed survey provides another indication that field activity continued to expand, although the overall pace of expansion slowed from the second quarter. Its equipment-utilization index for service firms rose to 41.9 from 31.9. That does not measure the volume of work directly, but it shows that substantially more service firms reported increasing equipment utilization than decreasing utilization.

Costs Moved First

The cost pressure did not begin last quarter. In the second quarter, the Dallas Fed’s input-cost index for service firms jumped from 34.9 to 64.4, and not one responding service firm reported a decrease in input costs. A reading of 64.4 means the share reporting increases exceeded the share reporting decreases by 64.4 percentage points. The index remained elevated at 60.4 in the third quarter.

Supply chains added to the pressure. The service-firm index for supplier delivery times rose to 21.4 from 11.1, meaning more service firms reported lengthening delivery times than shortening ones.

Labor costs also continued to rise across the survey, although the aggregate wages-and-benefits index edged down to 23.2 from 26.0. Because the index remained positive, more firms continued to report rising wages and benefits than declining ones.

Fuel was a separate source of pressure. AAA put the national average diesel price at approximately $6.30 per gallon on October 7, compared with approximately $3.68 a year earlier, an increase of about 71 percent.

Prices did not rise at the same pace. The prices-received index for service firms declined to 16.3 from 24.5, while the operating-margin index declined to 37.2 from 52.2. Both remained positive, meaning more service firms reported quarter-to-quarter increases than decreases, but the breadth of those increases narrowed. In particular, the positive operating-margin index indicates that margins continued to expand on net, although at a slower reported pace.

The View from the Other Side of the Table

Producers face cost pressure of their own, and it would be a mistake to read the survey simply as service companies against operators. Exploration and production firms reported third-quarter indexes of 41.5 for finding and development costs and 43.9 for lease operating expenses. The Dallas Fed noted that all cost indexes in the survey were above their historical series averages.

E&P respondents also described a price environment that is difficult to budget against. West Texas Intermediate spot prices averaged $98.70 per barrel during the survey collection period, while respondents’ average expectation for year-end was approximately $88. Their forecasts ranged from $70 to $126.

One E&P respondent wrote that companies must consider the steep backwardation in the oil market and budget using a price of $65 or $70 per barrel. Backwardation describes a downward-sloping futures curve in which nearer-dated oil prices are higher than prices for later delivery.

That difference between current prices and budget assumptions may help explain the divide between the industry’s outlook indexes. E&P firms posted an outlook index of 50.0, while service firms posted an index of 4.6. A producer budgeting at $65 or $70 per barrel may view a request for higher service rates differently from a service company facing higher costs after a survey period in which WTI averaged nearly $99. Both positions begin with real market data, but they focus on different points along the price curve.

Where the Contract Decides Who Pays

When costs rise and prices remain fixed, the pricing provisions in the agreement become critical. Start with these.

Check the term and the reset

Many service agreements fix rates for a stated period or attach a rate sheet to a master agreement under which individual work orders are issued. Determine what happens when the rate period ends. Some agreements continue the existing rate until the parties agree to a new one. Others allow the price stated in a work order to override the rate sheet. An order-of-precedence clause may determine which document controls when the master agreement, rate sheet and work order are inconsistent.

Check the index

If rates adjust by reference to a published index, confirm that the index tracks costs the service company actually incurs. A broad inflation measure may move differently from diesel prices, field wages or specialized equipment costs. Review the index’s reference date, any lag between movement in the index and adjustment of the contract rate, and whether an adjustment occurs automatically or only after notice. Also determine whether the provision operates in both directions.

Look at how fuel is priced

A fuel surcharge tied to a stated reference price and geographic region is generally easier to administer than fuel costs buried in a bundled service rate. If the agreement does not address fuel adjustments, the parties may not determine who bears the cost of $6-per-gallon diesel until an invoice is disputed. The agreement should also address adjustment frequency, the benchmark, the baseline price and required documentation.

Check how third-party costs are billed

Some agreements pass vendor charges through at cost. Others permit cost plus a stated markup, while some do not address third-party costs at all. If vendor charges may be passed through, review audit rights, supporting-document requirements and billing deadlines.

Read the force majeure clause for what it does and does not cover

Under Texas law, a force majeure analysis begins with the language of the parties’ agreement. Unless the agreement specifically allocates the relevant risk differently, higher costs or worse economics ordinarily do not, by themselves, excuse performance. Texas courts generally will not treat a foreseeable market change as a force majeure event under a general catch-all clause, although the result can be different when the parties expressly include market failure or another economic event. Agreements involving the sale of goods may also implicate remedies or defenses under the Uniform Commercial Code, depending on the transaction, governing law and the parties’ express allocation of risk.

Look for a price reopener

Some agreements permit either party to request a rate review after a defined trigger, such as a specified change in an index, fuel price, wage rate, tariff or third-party cost. If the agreement contains no price-reopener mechanism, a party ordinarily cannot obtain one merely because the bargain has become less favorable. A useful reopener should identify the trigger, required support, timing, whether an adjustment is mandatory or negotiated, and what happens if the parties cannot agree.

Read the delay language with supplier lead times in mind

With supplier delivery times lengthening, determine whether a vendor’s delayed shipment qualifies as an excusable delay. The answer may turn on whether the agreement covers supplier failures, requires alternative sources, or limits relief to circumstances beyond the affected party’s reasonable control. The agreement should also allocate standby costs. Failure to provide required notice may jeopardize a requested price adjustment, schedule extension or force majeure defense.

Check the obligation to continue working

Determine whether the agreement requires work to continue while a pricing or payment dispute is pending. Some contracts require continued performance during a dispute. Others permit suspension after notice, after nonpayment for a specified period, or after another defined default. Also review invoice approval, disputed-invoice procedures, setoff rights, interest on late payments and any right to suspend performance.

What Comes Next

Halliburton is scheduled to release its third-quarter results and hold its earnings call on October 20. SLB is scheduled to release its results and hold its call on October 23. Their comments on North American activity, costs and pricing will provide another indication of whether the conditions reported in the Dallas Fed survey are also visible in the results of two large public oilfield service companies.

The Dallas Fed’s next Energy Survey is scheduled for December 16. The figures to watch are the input-cost and prices-received indexes and whether the gap between them narrows.