The Federal Reserve Bank of Kansas City’s second-quarter energy survey shows modest growth for oil and gas activity across the Tenth District, but industry leaders said more robust price support will be needed to prompt a significant expansion in drilling.
Firms contacted between June 15 and June 30 reported that quarter-over-quarter energy activity improved, with the drilling and business activity index rising to 18 from 0 in the prior quarter. That reading also marked an increase from a year earlier, when the year-over-year drilling index was negative.
What this means for local producers and jobs
Producers and energy service companies in Kansas and neighboring states are seeing slightly stronger demand for work and higher revenues, according to the survey. Employment and access to credit moved into positive territory as well, with indexes at 13 and 15, respectively, signaling some hiring and easier financing compared with earlier in the year.
However, firms remain cautious about committing to larger capital programs. The capital expenditures index climbed to 15 for the quarter, but six-month expectations cooled from very elevated levels. Survey respondents cited price uncertainty as the main restraint: most expect prices to fall over the next six months.
Price thresholds and expectations
Survey respondents reported specific price levels they need before increasing drilling substantially. On average, firms said:
- $66 per barrel WTI is needed for drilling to be profitable on average.
- $83 per barrel WTI is needed for a substantial increase in drilling activity.
- $3.61 per million Btu is the average natural gas price needed for drilling to be profitable.
- $4.53 per million Btu is the natural gas price seen as sufficient to trigger substantial drilling growth.
| Measure | Reported Value |
|---|---|
| Quarter-over-quarter drilling/business index | 18 |
| Employment index | 13 |
| Access to credit index | 15 |
| Expected average WTI next six months | $75/barrel |
Despite the recent improvement in activity, firms on average expect WTI to trade around $75 per barrel over the next six months — below the $83 benchmark respondents said would be required to expand drilling substantially. The survey also noted that 73% of firms anticipate oil prices will decline in the coming half-year, which helps explain the more cautious near-term outlook.
Broader context for Kansas-area energy stakeholders
The Tenth District survey, which covers a region that includes Kansas, Nebraska, Oklahoma and parts of several other states, suggests a gradual recovery rather than an investment boom. For local service companies, that may mean steadier but not dramatically higher contract volumes this year. For landowners and communities that rely on energy-sector employment, modest hiring is possible, but major new projects appear unlikely until prices firm up above the levels firms identified.
Policymakers and industry watchers will be watching both commodity markets and lending conditions closely. The survey’s positive readings for revenue, profits and access to credit are encouraging, but the gap between firms’ profitability thresholds and their price expectations indicates limited upside for drilling in the near term.
— Cole Bergman, Kansas Correspondent
