Federal Reserve Bank's energy index up, compared to three months ago
Improved oil prices haven’t necessarily stopped the slide in the number of rigs drilling in Oklahoma and the nation.
But oil and gas executives who routinely participate in a survey of oil and gas activity across much of the Great Plains and other parts of the west-central U.S. expect at least some near-term improvement in the business, latest results show.
On Friday, the Federal Reserve Bank of Kansas City released its quarterly energy survey.
Comments provided by some survey participants showed that executives remain relatively cautious, despite the recent climb in oil prices.
“We are focusing on what we control, shoring up and improving our equipment, hoping that translates towards better efficiency and doing so from cash flow and without taking on debt,” one executive remarked.
“Regardless of energy prices over the next six months, we want to reduce debt and be better positioned to ride out another downturn in pricing, should that occur.”
The survey evaluates drilling and business activity, expectations for future revenues, capital expenditures and profits. It polls executives on their expectations about future employment needs and wage and benefit requirements as well as access to credit.
It also asked executives about their expectations on where oil and natural gas prices will be in six months, a year, two years and five years from now.
The survey showed:
• Energy business activity during the first quarter remained flat.
• Executives expect better revenues and profits during the coming quarter.
• They also expect future employment needs to decline, wages and benefits requirements will decrease and gaining access to credit will be tougher.
• Executives anticipate oil prices will hold at $60 a barrel or better during the coming year and that natural gas prices will improve, somewhat.
The survey reported that executives, on average, said the price for oil they needed for profitability was $52 a barrel, while the price for natural gas they needed for profitability was $3.02 per thousand cubic feet.
They expected that per-barrel oil pricing would be in the $60 to $61 range during the coming year, $65 two years from now and $72 five years out.
While they expected natural gas prices would improve, bank officials said executives’ expectations had declined on how much they would improve, compared with the survey taken during the final quarter of 2018.
Executives expected natural gas pricing would remain at or below $2.91 per thousand cubic feet during the coming year and wouldn’t climb past $3.18 per thousand cubic feet during the next five years.
“Higher oil prices in 2019 appear to have stabilized the regional energy sector following a decline in late 2018,” said Chad Wilkerson, the bank’s Oklahoma City branch executive and the bank’s economist.
“Drilling is expected to be a little higher in coming months, as oil prices are expected to stay about the $52 per barrel that firms report is needed, on average, to be profitable in the fields where they are active.”
The Federal Reserve Bank of Kansas City serves the Tenth Federal Reserve District, which encompasses the western third of Missouri, all of Kansas, Colorado, Nebraska, Oklahoma and Wyoming and the northern half of New Mexico.
More information is available at kansascityfed.org, officials said.