The oil and gas sector is continuing to expand, and expectations for future activity remain high, according a survey released Friday by the Federal Reserve Bank of Kansas City.
The drilling and business activity index jumped from 26 to 45 during the third quarter, the highest level since early 2017, and the future access to credit index increased from 6 to 30, the highest level in survey history, according to the Fed's monthly 10th District Energy Survey.
“Regional energy activity grew faster in the third quarter as prices pushed higher,” said Chad Wilkerson, Oklahoma City Branch executive and economist at the Federal Reserve Bank of Kansas City.
“The profitable price for oil drilling was up slightly from the past few years but still well below current and expected prices.”
The average oil price needed for profitability was $55 per barrel, with firms reporting a range from $35 to $84 per barrel. The range reported in 2016 was $51 to $53 per barrel.
The average natural gas price needed was $3.23 per million Btu with responses ranging from $2.25 to $7, also an increase over the previous two surveys.
Average oil prices in the next six months, one year, two years and five years are expected to be $71, $72, $73 and $79 per barrel, the survey shows.
Average natural gas prices expected in the same time periods are $2.89, $2.92, $3.10, and $3.42 per million Btu, respectively.
Both oil and prices represent previous surveys.
More than 60 percent of the firms responding to the survey indicated that any excess financial capital over the next 12 months would be used to expand their businesses through capital expenditures.
Nearly 40 percent reported that they would use excess capital to reduce debt, and a quarter of respondents said they would prioritize paying out dividends.
More than 21 percent reported that excess capital would be put toward wages and employee benefits.
Esther George, president and CEO of the Federal Reserve Bank of Kansas City, emphasized the impact capital expenditures in the energy sector have on the nation's economy in a presentation Thursday at the Mayo Hotel.
“Research by my staff finds that the energy sector has had a significant influence on investment spending in the U.S. economy, both to the upside and to the downside,” she said.
For example, from 2006 to 2014, capital expenditure spending for publicly traded U.S. firms rose 41 percent.
That boost in spending was largely driven by energy investment, which grew 125 percent compared to 21 percent for nonenergy investment.
Following the oil price decline in 2014, energy investment plunged more than 50 percent over two years while nonenergy investment grew 2 percent.
During that time capital expenditures fell 15 percent.
The Kansas City Fed's quarterly Tenth District Energy Survey provides information on current and expected activity among energy firms in the Tenth District, which includes the western third of Missouri; all of Kansas, Colorado, Nebraska, Oklahoma and Wyoming; and the northern half of New Mexico.