Growth pre­dicted

Tulsa World - - Work&money - By Mike Averill nat­u­ral gas ex­pected slight in­creases over Mike Averill 918-581-8489 mike.averill@tul­saworld.com Twit­ter: @Mike_Aver­ill

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.

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