Energy activity continues to be on the upswing in Oklahoma and the other states that make up the Tenth District of the Federal Reserve Bank of Kansas City.
The Bank released its second quarter Energy Survey showing energy activity continues to increase steadily with revenues and profits rising at a faster pace.
Chad Wilkerson, the Oklahoma City Branch executive and economist at the Federal Reserve Bank of Kansas City said activity also continues to outpace the previous year and expectations remain at solid levels.
“Growth in District drilling and business activity remained solid in Q2, and expectations indicated further expansion in the next six months,” added Wilkerson. “In addition, indexes for firms’ revenues and profits jumped to their highest levels since the survey began in 2014.”
Total revenues and profits indexes posted their highest levels since the survey began in 2014. In addition, employment, employee hours, access to credit, and wages and benefits indexes increased from the previous quarter.
Year-over-year indexes continued to increase from the previous survey. The year-over-year drilling and business activity index moved from 10 to 59. Nearly all other indexes were also higher than the previous reading, with the exception of supplier delivery time, which decreased from 7 to 3.
Most expectations indexes continued to increase in Q2 2021. The future drilling and business activity index, at 41, was up from 40 in Q1 and 26 in Q4 2020, indicating slightly more firms expected energy activity to expand. The revenues and profits indexes rose substantially, and expectations for employment, supplier delivery time, and access to credit also expanded. Price expectations for oil, natural gas, and natural gas liquids expanded at a moderately faster pace.
This quarter firms were asked what oil and natural gas prices were needed on average for a substantial increase in drilling to occur across the fields in which they are active (in alternate quarters they are asked what prices are needed for drilling to be profitable). The average oil price needed was $72 per barrel, with a range of $35 to $80 (Chart 2). This average was considerably higher than prices needed to substantially increase drilling the past few years. The average natural gas price needed was $3.82 per million Btu, with responses ranging from $2.00 to $7.00.
Firms were again asked what they expected oil and natural gas prices to be in six months, one year, two years, and five years. Overall, expected oil and natural gas prices were higher than previous price expectations in 2020. The average expected WTI prices were $74, $76, $76, and $78 per barrel, respectively. The average expected Henry Hub natural gas prices were $3.19, $3.21, $3.34, and $3.71 per million Btu, respectively.
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