Oil and gas operators in the central US show growing optimism in a survey by the Federal Reserve Bank of Kansas City.
“Regional oil and gas firms said they returned to profitability in the fourth quarter for the first time in over 2 years,” said Chad Wilkerson, Oklahoma City Branch executive and economist at the Kansas City Fed. “Companies began hiring again and increased their drilling programs further.”
The Kansas City bank covers the Tenth Federal Reserve District, which includes the western third of Missouri; all of Kansas, Colorado, Nebraska, Oklahoma, and Wyoming; and the northern half of New Mexico.
In its quarterly energy survey, the bank reports results as diffusion indexes, calculated as the percentage of respondents indicating increases minus the percentage of respondents indicating decreases. Companies were contacted during Dec. 15-30—after members of the Organization of Petroleum Exporting Countries agreed to cut aggregate production by 1.2 million b/d starting Jan. 1 (OGJ Online, Nov. 30, 2016).
A strong sign of optimism was a jump in the index for capital expenditures expected in 6 months to 79 in the fourth-quarter survey from 9 in the third quarter.
Indexes for 6-month expectations jumped quarter-to-quarter to 73 from 21 for drilling and business activity, to 67 from 6 for total revenue, and to 76 from 5 for total profits.
Strengthened expectations reflect increases in actual results reported by survey respondents between the third and fourth quarters of 2016.
The survey’s drilling and business activity index increased to 64 in the fourth quarter from 26 in the third quarter. The fourth-quarter number was the highest in this category in the 3-year history of the survey.
Between the quarters, the total revenue index increased to 62 from 5, and the total profit index, to 42, the first positive reading in more than 2 years, from -10.
Price expectations by survey respondents averaged $58/bbl at yearend 2017 and 63/bbl at yearend 2018 for West Texas Intermediate crude oil and $3.64/MMbtu at yearend 2017 and $3.73/MMbtu at yearend 2018 for Henry Hub natural gas.