Oil patch bleeding down to ‘a trickle’

LIGHT AHEAD: Survey indicates many companies increasing activity as crude prices rise

Energy executives say the tide is finally turning in the oil patch after a two-year bust that bankrupted scores of companies.

In the second quarter, the number of oil companies reporting an increase in business activity doubled from the first three months of the year, according to a survey released Wednesday by the Federal Reserve Bank of Dallas. The survey suggests that the industry is putting more faith in the market rally that has taken crude prices from $26 a barrel in February to around $50 a barrel in recent weeks.

More than half of the 152 oil producers and equipment suppliers participating in the survey said crude prices would finish the year higher than $55 a barrel. That’s a pretty optimistic outlook after the dire predictions just a few months ago of a $40-a-barrel

ceiling for petroleum this year.

Companies are beginning to act on this optimism, too, the Dallas Fed reported. The number of drillers in expansion mode finally overtook declining ones, and some oil executives told the Fed that they expect to keep expanding into 2017 if oil prices hold up.

“We’re at an inflection point,” said Patrick Jankowski, a regional economist at the Greater Houston Partnership. “The profuse bleeding has become a trickle.”

Oil prices are near $50 a barrel, the cusp of profitable levels for U.S. companies drilling shale fields in Texas and North Dakota. Break-even prices for drillers in Texas ranged between $50.54 a barrel to $55.27 a barrel, according to the survey.

Oil settled in New York Wednesday at $49.88, gaining more than $2 a barrel and recovering most of the losses that followed the United Kingdom’s vote to leave the European Union.

If crude prices rise above profitable levels, drillers could deploy some 200 rigs back to the shale fields by the end of the year, Jankowski predicted.

And it appears the oil industry has finished the worst of its blue-collar job cuts, though it may continue to shed whitecollar workers for a while, he said.

While the industry has begun to recover, most indicators of business activity — like capital spending and employment levels — remained in negative territory in the second quarter, according to the Dallas Fed. Only one in five companies reported a boost in capital spending, and just over one in 10 said they increased employment levels in the second quarter.

“There are still plenty of signs the slump is still ongoing, but it’s moderating,” said Michael Plante, senior research economist at the Dallas Fed.

Oil executives have changed their tune about drilling prospects as crude prices rise.

Some told the Fed they’re cautiously optimistic that the rise in oil prices has taken hold permanently, but they’re still waiting to see how the market advances before returning to the oil patch. Others were more skeptical.

“I am not as optimistic as some that the recent increase in the oil price indicates a turn,” one oil field services executive said in the anonymous survey. “While I believe that we may not see the price in the $20 to $30 range per barrel, I do not see it moving significantly upward until second quarter 2017.”