Tenth district energy activity continued decline in first quarter

The Federal Reserve Bank of Kansas City’s first quarter energy survey revealed another big drop in tenth district energy firm activity.

The Kansas City Fed's quarterly energy survey monitors oil- and gas-related firms located or headquartered in the tenth district, with results based on total firm activity. The district encompasses the western third of Missouri; all of Kansas, Colorado, Nebraska, Oklahoma and Wyoming; and the northern half of New Mexico.

Survey results reveal changes in several indicators of energy activity, including drilling, capital spending, and employment. All results are diffusion indexes—the percentage of firms indicating increases minus the percentage of firms indicating decreases.

According to the first-quarter survey, the future energy activity outlook remained pessimistic, but slightly less so than last quarter. The drilling and business activity index dropped to negative 72 from negative 53, meaning even more firms than last quarter saw decreases in activity.

However, the total revenues index inched higher. All three employment-related indexes—including number of employees; employee hours; and wages and benefits—decreased modestly and remained negative. Access to credit improved slightly.

Firms also indicated projections for oil and gas prices. Firms on average projected WTI prices to be $45/bbl by yearend 2016 and $56/bbl by yearend 2017.

“The average oil price firms say they need to be profitable in active fields dropped to $51/bbl in this survey from $60/bbl last fall, but firms on average do not expect that price to be reached until well into 2017,” said Chad Wilkerson, vice-president, economist, and Oklahoma City branch executive at the Federal Reserve Bank of Kansas City. “As a result, many expect large job cuts in 2016.”

On average, firms expected their employment to be 22% lower in 2016 than in 2015.

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