Mid-continent oil and gas activity improved in the first quarter, climbing above last year’s levels for the first time since March 2019, according to the Federal Reserve Bank of Kansas City.
The Kansas City Fed, as it’s better known, compiles energy activity quarterly for the Tenth District, which includes companies headquartered in Colorado, Missouri, Nebraska, northern New Mexico, and Oklahoma.
“District drilling and commercial activity remained fairly strong in the first quarter, and expectations pointed to further growth over the next six months,” Kansas City Fed economist Chad Wilkerson said. “Additionally, many companies reported job growth for the first time since the start of 2019, and crude oil price expectations were the highest in more than two years.”
The report follows a recent first-quarter energy survey by the Federal Reserve Bank of Dallas, covering activity in Louisiana, parts of New Mexico and Texas. In the Dallas Fed survey, executives reported a dramatic improvement in their outlook for 2021.
Energy officials who responded to the Tenth District survey from March 15 to 31 said they needed higher oil and gas prices to stay profitable. Oil prices would need to average $ 53 / bbl West Texas Intermediate for drilling to be profitable, while Henry Hub natural gas needs an average of $ 2.94 / m3, according to the survey.
The drilling and trading index declined slightly on a sequential basis, from 40 to 34. The indices of total income, profits, employment, hours of work, access to credit and wages / benefits all climbed from the fourth quarter.
Year-to-year indices moved into positive territory for the first time since the start of 2019. The drilling and trading activity index fell from minus 60 to 10. Income, capital expenditures and profits were also low. higher than levels a year ago. At the same time, employment and access to credit continued to decline.
Energy executives said their expectations had risen. The future index of drilling and commercial activity was 40, against 26 in 4Q2020 and zero in 3Q2020, “indicating that more companies expected an expansion of energy activity”, notes the survey.
“Capital spending and employment indices have increased dramatically, and expectations for income, profits and access to credit have also increased. Price expectations for oil, natural gas and natural gas liquids increased at a slower pace, but remained at high levels. “
Still, there are concerns.
“Years of overspending by shale drillers will limit opportunities for survivors to fund drilling programs,” one executive said in comments to the Kansas City Fed. “Oil markets will become more dependent” on the actions of the Organization of the Petroleum Exporting Countries “as they regain market share. This will become more evident once investors realize that many horizontal areas were overdrilled and billions were wasted on wells that did not need to be drilled.
Another pointed out how difficult it is to hire people.
“We lost a lot of employees who left when the price collapsed last spring,” the executive said. “It was difficult to hire a skilled workforce.”
Another said: “Full-time employment is declining, will continue to decline and will be replaced by more contract / part-time workers.”
Executives were also asked about their outlook for oil and natural gas prices over the next five years. Overall, prices were expected to move higher than previous price expectations in 2020.
The average response for what WTI could be in six months was $ 62 / bbl, with a wait of $ 65 in one year, $ 67 in two years, and $ 70 in five years. Henry Hub’s natural gas prices were set at $ 2.72 / m3 in six months, $ 2.94 in one year, $ 3.14 in two years, and $ 3.50 in five years.
“Huge uncertainty will exist both on the demand side and politically over the next 12 to 24 months,” said one leader. “Conquering Covid-19 and returning to normal market demand will be the first step. The policy change in the United States will then provide the next tailwind or headwind depending on direction and balance. “