Tenth District Energy Activity Was Unchanged
The Federal Reserve Bank of Kansas City released the first quarter Energy Survey. According to Cortney Cowley, assistant vice president and Oklahoma City Branch executive at the Federal Reserve Bank of Kansas City, Tenth District energy activity was unchanged, but future expectations were substantially higher than last quarter.
“Tenth District drilling and business activity stayed steady in Q1, while capital expenditures continued to decline,” said Cowley. “The revenues and profits indexes reached their highest levels since Q2 2022 amid substantially higher oil prices in recent weeks, but most firms do not expect prices to support a substantial increase in drilling in the next six months.”
The Kansas City Fed’s quarterly Tenth District Energy Survey provides information on current and expected activity among energy firms in the Tenth District. The survey monitors oil and gas-related firms located and/or headquartered in the Tenth District, with results based on total firm activity.
Firms reported that oil prices needed to be on average $63 per barrel for drilling to be profitable, and $79 per barrel for a substantial increase in drilling to occur. Natural gas prices needed to be $3.74 per million Btu for drilling to be profitable on average, and $4.84 per million Btu for drilling to increase substantially.
Despite higher oil prices, the average firm only expects WTI
oil to be $76/barrel in the next six months, below the $79/barrel price the average firm reports needing to support a substantial increase in drilling.
Survey results reveal changes in several indicators of energy
activity, including drilling, capital spending, and employment. Firms also indicate projections for oil and gas prices.
The Federal Reserve Bank of Kansas City serves the Tenth Federal Reserve District, encompassing the western third of Missouri; all of Kansas, Colorado, Nebraska, Oklahoma and Wyoming; and the northern half of New Mexico.
Drilling activity also was flat from this time last year, employment levels and access to credit increased from last year, and six-month expectations increased substantially in Q1 amid higher oil prices, with the drilling activity, revenues, profits, and capital expenditures indexes all still strong.
Summary of Special Questions
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 $76, $71, $70,
and $75 per barrel, respectively. The average expected
Henry Hub natural gas prices were $3.42, $3.66, $4.00, and
$4.59 per million Btu, respectively.
Firms were asked how they expect recovery rates from
U.S. shale wells to increase over the next 10 years.
A quarter (25%) of firms expect oil recovery rates from U.S.
shale wells to increase significantly over the next 10 years,
while 50% expect them to increase slightly, another 16%
expect no change, and only 9% expect rates to decline.
Slightly fewer firms (13%) expect natural gas recovery rates
to increase significantly, while 55% expect them to increase
slightly, and 32% expect no change.
Contacts were also asked about their expectations for
Venezuelan oil production over the next 24 months compared to expectations three months ago. Half of firms (50%) expect slightly more Venezuelan oil production, 22% expect significantly more, 12% report expectations have not changed, 7% expect slightly less production, and 9% reported no opinion.
3
Selected Energy Survey Comments
“Economic and political uncertainty will have us on the sidelines.”
“Prices will likely remain elevated as long as the Strait of Hormuz is closed. Prices may remain elevated for an extended period of time.”
“Don’t anticipate any changes until prices stabilize.”
“High prices for too long will destroy oil demand and prices will go below economic replacement cost. Short term profits will be higher but in the longer term, we could see some disruption due to low prices.”
“At this point we are not altering our drilling plans. We have done some sensitivity analysis on our budget. If oil prices continue to move higher, we will most likely use this as an opportunity to accelerate our debt repayment.”
“Unstable energy prices do not appear to be causing increased drilling activity as it has in past wars. Oil companies are much more measured and capital disciplined, and are not reacting too
quickly.”
“Higher oil prices will increase free cash flow that can be reinvested into new wells.”
“Companies are delaying expenditures.”
“Increase in oil prices will drive drilling which will add additional supply to natural gas, driving the price down.”
“In the long term, prices will revert to the norm. Short term we will see a temporary spike in oil prices. At this point, we will not change our strategy.”
“Reduced activity in the near term. Potential for greater activity later this year and over the medium term.”
“Short term price spike, some higher drilling activity in 2026 and 2027.”
“We layered in additional hedges, but left room for more should the conflict get worse.”
“We are looking to hedge more at these high prices.”
“With oil prices backward dated, we have no plans to add to hedges.”