The Federal Reserve Bank of Kansas City’s first-quarter Energy Survey revealed that Tenth District energy activity decreased at a steep pace and expectations for future activity dropped further.
“District energy activity fell sharply during the first quarter of 2020, with our index dropping to its lowest level since we began the survey in early 2014,” Chad Wilkerson, Oklahoma City Branch executive and economist at the Federal Reserve Bank of Kansas City, said in a written statement.
“Expectations for future activity also fell to their lowest level since late 2014, as most firms do not expect energy prices to return to profitable levels this year.”
The drilling and business activity index fell from -48 to -81, the lowest reading in survey history (since early 2014), indicating a continued, deep decrease in activity. The revenues and profits indexes fell sharply to levels last seen in Q1 2015. Indexes for employment and employee hours indexes also decreased significantly, and the wages and benefits index turned negative, according to survey results.
Year-over-year the indexes also declined substantially. The year-over-year drilling and business activity index sank further, from -50 to -92, a record survey low. Indexes for total revenues, capital expenditures, delivery time, profits, employment, employee hours, and access to credit decreased again in the first quarter, marking over six months in negative territory. The year-over-year index for wages and benefits also turned negative.
In addition, expectations indexes dropped further. The future drilling and business activity index worsened from -21 to -78, the weakest outlook for activity since Q4 2014. Price expectations for oil and natural gas liquids decreased compared to the previous quarter, while price expectations for natural gas rose.
When asked what oil and gas prices were needed for drilling to be profitable on average across the fields in which they are active, the average was $47 per barrel, with a range of $25 to $65. This average was below the prices reported in 2019, and the lowest recorded profitable price. Meanwhile, the average natural gas price needed was $2.74 per million Btu, with responses ranging from $1.90 to $4.50.
Expected oil prices were much lower than previous price expectations. The average expected WTI prices were $33, $42, $50, and $58 per barrel, respectively. Expectations for natural gas prices also decreased from last quarter. The average expected Henry Hub natural gas prices were $2.02, $2.34, $2.57, and $2.94 per million Btu, respectively.
When asked about their expectations of solvency if low oil prices persist, respondents anticipated on average that 61 percent of firms would remain solvent in the next year if the WTI were to stay at $30 per barrel, and 64 percent of firms would remain solvent if the WTI price stayed at $40.
To contact the author, email bertie.taylor@rigzone.com.
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