Oklahoma’s energy sector continues to show improvement

Increased drilling activity and improved employment for the first time in two years show the state’s oil and natural gas sector continues to recover, the Oklahoma City Branch of the Federal Reserve of Kansas City said Tuesday.

“Things have clearly begun to pick up again,” said Chad Wilkerson, vice president and economist at the Oklahoma City branch. “Things have definitely recovered in the sector in terms of drilling. We’re beginning to see it in terms of employment, and its beginning to translate to GDP and tax collections.”

After falling to less than $30 a barrel in February 2016, the price of oil approached $55 earlier this year before slipping back to near $48 last week. Drilling activity has followed a similar pattern, with the number of rigs drilling in the state falling to 57 in May 2016 before recovering to 111 last week.

Oklahoma’s energy sector in January saw its first yearover-year gains in more than two years, although only outside the Oklahoma City and Tulsa metro areas.

“Just as with the downturn, the upturn is hitting rural areas first,” Wilkerson said. “That’s where the rigs are. The first impact is at the rig, which in almost all cases is in non-metro areas.”

The drilling increase was fueled largely by recovering oil and natural gas prices, but prices for both commodities have slipped this month. The Kansas City Fed’s fourth-quarter energy survey found that responding executives said the minimum oil price needed for profitability is about $40 a barrel and that they would need prices to average more than $60 a barrel before they would significantly increase drilling activity.

The first-quarter survey expected next month also will include a question about whether executives took advantage of higher prices earlier in the year to lock in strong sales prices.

“Things have clearly begun to pick up again, but we wanted to see how much they have picked up,” Wilkerson said. “We’ll get a good glimpse of that with our first-quarter survey.”