Second quarter energy survey results showed that Federal Reserve Bank’sTenth District energy activity fell moderately, with no changes expected in the next six months.
Oklahoma is one of the states in the Kansas City Federal Reserve Bank’s Tenth District.
Firms reported that oil prices needed to be on average $64 per barrel for drilling to be profitable, and $83 per barrel for a substantial increase in drilling to occur. Natural gas prices needed to be $3.79 per million Btu for drilling to be profitable on average, and $5.01 per million Btu for drilling to increase substantially.
The quarter-over-quarter drilling and business activity index was -17 in Q2, down from 6 in Q1 and from -13 in Q4 (Chart 1). Revenues and profit continued to decline at -10 and -17, respectively. The employment index also decreased at -7 following previous positive readings.
Drilling activity also decreased from this time last year, with the year-over-year drilling/business activity index ticking up from -18 to -17 in Q2. However, employment continued to increase on an annual basis, staying at a reading of 24. Capital expenditures fell only slightly from last year at -3.
Firms do not expect activity to rebound in the coming six months, with the index falling from 21 to 0 in Q2. Further, revenues are expected to increase minimally while capital expenditures, employment, employee hours, and oil prices are all expected to decline further.
Firms were asked what oil and natural gas prices were needed on average for drilling to be profitable across the fields in which they are active. The average oil price needed was $64 per barrel, while the average natural gas price needed was $3.79 per million Btu . Firms were also asked what prices were needed for a substantial increase in drilling to occur across the fields in which they are active. The average oil price needed was $83 per barrel, and the average natural gas price needed was $5.01 per million Btu.
Firms reported what they expected oil and natural gas prices to be in six months, one year, two years, and five years. The average expected WTI prices were $67, $67, $71, and $79 per barrel, respectively. The average expected Henry Hub natural gas prices were $3.76, $3.85, $4.19, and $4.71 per million Btu, respectively.
Firms were asked how they have changed their inventories if they have adjusted their inventories strategy. Most firms (70%) have not adjusted their inventories strategy. Nearly a fifth (19%) of firms reported they have adjusted their strategy and have higher inventories, while 4% each reported unchanged, lower, and significantly lower inventories.
Contacts were also asked how their firms’ capital expenditures plans have changed since the start of the year. About a tenth (11%) reported increasing plans for capital expenditures compared to the beginning of the year while 46% reported decreasing plans for capital expenditures. Another 43% reported their capital expenditures plans have not changed.
