District drilling and business activity posted a decline in 2024 Q3, for the seventh consecutive quarter, and is not expected to rebound in coming months. However, employment continued to grow and firms’ hiring plans are unchanged despite further contractions in revenues and profits.
Drilling activity remained down from this time last year, with the year-over-year drilling and business activity index ticking down.
Annual revenues decreased substantially. Employment levels continued increasing from year-ago levels but employee hours fell. Capital expenditures continued to decrease moderately, but access to credit stayed positive.
Activity is expected to be slightly negative in the next six months, with the six-month drilling expectations index falling. Expected revenues are down, too, but profits are expected to increase. All other expectations indexes are positive except for supplier delivery time.
Firms were asked what oil and natural gas prices are needed on average for drilling to be profitable across the fields in which they are active. The average oil price needed was $65 per barrel, while the average natural gas price needed was $3.43 per million Btu (British thermal units).
Firms also were asked what prices are needed for a substantial increase in drilling to occur across the fields in which they are active. The average oil price needed was $89 per barrel, and the average natural gas price needed is $4.24 per million Btu.
Firms were asked how their hiring and capital expenditures plans have changed since the beginning of the year. Hiring plans of most firms’ (87%) are unchanged, while 6.5% now expect more hiring in 2024 than they did at the beginning of the year and changed since the beginning of the year.
More than two-thirds (68%) of firms report more uncertainty about economic conditions now than the beginning of the year, while 23% report no change in their uncertainty. Another 3% each reported much more uncertainty, less uncertainty, and much less uncertainty. Selected Comments
• “The key factors driving us in the next six months are finding assets to acquire that fit our criteria by expanding out of the MidCon due to increased competition in Oklahoma.”
• “The natural gas side of our business has become very cyclical and it feels like one year of great pricing and then if we have warm winters, two years of lousy pricing. The industry has become too good at finding natural gas and with the Permian takeaway increasing, a lot of Permian operators don't care about gas as a revenue stream with the strong oil component.”
• “Geopolitical risk remains and potential economic slowdown continues to be a possibility.”
• “The easiest barrels have been produced. A needed return on capital expenditures will provide a longterm floor for oil price. Natural gas needs to be close to $4 for profitable development other than associated gas in the Permian.”
• “Continued overabundance of gas supply dampens price increases.”
• “Contract labor force is still not good.”
• “The market price of our product is not high enough to warrant drilling at this time.”
Chad Wilkerson serves as Oklahoma City Branch Executive and Senior Vice President for the Federal Reserve Bank of Kansas City. Chase Farha is a research associate in the Regional Affairs department at the Oklahoma City branch of the Federal Reserve Bank of Kansas City. Jannety Mosley is a senior survey analyst in the Regional Affairs Department at the Oklahoma City branch of the Federal Reserve Bank of Kansas City.