July 14–The oil and natural gas sector continues to expand as stronger oil prices again are boosting industry executives’ expectations, according to a survey released Friday by the Federal Reserve Bank of Kansas City.
Most energy firms in the region reported increased revenues, total profits and wages and benefits, according to the Fed’s monthly 10th District Energy Survey. The employment index reached its highest level since early 2017 even as the drilling and business activity index declined slightly.
“Expectations are nearly as high as they have ever been. Executives are pretty optimistic about future drilling activity,” said Chad Wilkerson, vice president and economist at the Oklahoma City branch of the Federal Reserve Bank of Kansas City.
“The results are good for Oklahoma. Production is rising and is likely to continue to rise in the future. It all depends on where the price is, but as long as the price stays at this level, they need to expand activity a decent amount. That should be good things for production, jobs and incomes.”
Responding executives said they need the oil price to average about $69 a barrel for a “substantial increase” in drilling to occur. That necessary price has jumped from $56 a barrel one year ago.
“That’s a combination of moving to less-lucrative areas of plays along with service cost inflation,” Wilkerson said. “They said the factors that could limit growth included availability of workers and inflation of services costs.”
While the price needed for increased drilling has risen, benchmark oil prices have surged more. Domestic benchmark West Texas Intermediate crude jumped $1.11 Friday to $71.44 a barrel.
“Geopolitical pressures on supplies and continued positive economic conditions around the world are driving our expectations for oil prices,” one survey respondent stated.
Gas prices dissipate
While oil prices have surged over the past year, natural gas prices have stalled. The U.S. benchmark natural gas price slipped to $2.75 per thousand cubic feet on Friday. Survey respondents said they need an average price of $3.60 before substantially increasing natural gas drilling.
“There is too much supply of natural gas,” one respondent stated. “Too much gas with new completions are filling pipes.”
The survey found wages and benefits to be at their highest levels in the survey’s history, even though total employment in the industry is well below 2014 levels.
“A number of folks left the industry after the last downturn and don’t have much interest in coming back,” Wilkerson said.
Improved technology and practices have allowed the U.S. oil and natural gas industry to reach record production with a rig count just more than half of 2014 highs.
“Technology gains have reduced the demand for some kinds of jobs but increased the needs for other jobs,” Wilkerson said. “As more occupational data comes out, we’ll get a sense for what kinds of jobs are increasing and decreasing within the industry. Some higher-end jobs are perhaps more in demand, whereas some jobs that can be somewhat automated may be less in demand. That pushes up the average wage.”
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