Fed bank’s survey finds Q1 declines for energy

Energy activity fell again in the first quarter as continued low prices weigh on oil and natural gas producers, the Federal Reserve Bank of Kansas City said Friday.

The bank’s quarterly energy survey showed declines in drilling, business activity and access to credit. Respondents said they needed oil to top $50 a barrel, a level that most don’t expect it to reach until next year.

“The average oil price firms say they need to be profitable in active fields dropped to $51 per barrel in this survey from $60 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. “As a result, many expect large job cuts in 2016.”

Domestic crude rose 6 percent to $39.73 a barrel in Friday morning trading in New York.

The Kansas City Fed’s energy survey remained in negative territory in all areas, including drilling activity, revenue and profits. The drilling index was -67, while revenues were -62 and profits were -72. Employment indexes for number of employees, hours worked and wages and benefits also were all negative.

The survey is a diffusion index, which means it takes the percentage of firms expecting increases minus the percentage of those expecting decreases.

Comments from respondents were pessimistic.

“No spending, no hiring, no future growth plans or purchasing of equipment no matter how low the price,” one unidentified respondent said in

selected comments provided by the bank. “Just trying to survive for what we hope will be some type of rebound in pricing.”

Other companies noted tightening credit and the need to preserve cash.

“Money is scarce,” said another respondent. “Banks are already saddled with oil and gas companies that are upside down and no more funding will be coming from them. Alternative sources are less scarce, but it is expensive money.”

Dismal job outlook

Companies were asked about their employment plans in 2016. Overall, employment was expected to fall by 22 percent this year, with the largest declines at oil-field services companies and exploration and production companies.

“Completion backlog is likely to be reduced in the short term, so will offset this year’s decline,” one company said. “Accelerated rate of production decline more likely to be felt in 2017 as available completion backlog shrinks.”

Respondents said they expect West Texas Intermediate crude to end the year at about $45 per barrel. They projected an average price of $56 a barrel by the end of 2017. “It will take a couple of years to work through oil inventories even as production falls,” one company said.

The Federal Reserve Bank of Kansas City’s first-quarter energy survey was conducted in the last half of March and included 39 responses from energy companies in Oklahoma, Colorado, Nebraska, Wyoming, Kansas, northern New Mexico and western Missouri.