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Summary of Quarterly Indicators

Tenth District energy activity declined sharply in the fourth quarter of 2023, as indicated by firms contacted between Dec. 15th, 2023, and Jan. 3rd, 2024 (Tables 1 & 2). The drilling and business activity index decreased from -13 to -33 (Chart 1). Profits and revenues also declined this quarter. Only the employment-related indexes had positive readings this quarter—namely the number of employees, employee hours, and wages & benefits indexes.

Chart 1. Drilling/Business Activity Indexes

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Chart 1 is a time series of the drilling/business activity index versus a quarter ago and versus a year ago from the fourth quarter of 2019 to the fourth quarter of 2023. Quarterly drilling and business activity index declined from -13 to -33.
Quarter Vs. a Quarter Ago Vs. a Year Ago
Q4 19 -48 -50
Q1 20 -81 -92
Q2 20 -62 -70
Q3 20 4 -71
Q4 20 40 -60
Q1 21 35 12
Q2 21 33 59
Q3 21 43 68
Q4 21 32 74
Q1 22 29 52
Q2 22 57 77
Q3 22 44 78
Q4 22 6 56
Q1 23 -13 17
Q2 23 -19 -16
Q3 23 -13 -23
Q4 23 -33 -33

Activity also fell sharply from this time last year. Drilling/business activity, revenues, profits, and supplier delivery time all continued to post negative readings. Capital expenditures continue to expand moderately even as access to credit stays flat.

Expectations for future activity remained expansionary despite the downturn. All expectations indexes stayed positive, except for supplier delivery time, access to credit, and the expected natural gas prices. Firms anticipate activity will pick up moderately in the next six months, but profits will stay mostly flat, while the expected employment index picked up to a reading of 40.

Summary of Special Questions

Firms were asked what oil and natural gas prices were needed on average for drilling to be profitable across the fields in which they are active. The average oil price needed was $64 per barrel (Chart 2), while the average natural gas price needed was $3.12 per million Btu (Chart 3). Firms were also asked what prices were needed for a substantial increase in drilling to occur across the fields in which they are active. The average oil price needed was $84 per barrel (Chart 2), and the average natural gas price needed was $4.04 per million Btu (Chart 3).

Firms were asked what oil prices were needed on average for drilling to be profitable and for a substantial increase to occur across the fields in which they are active, as well as their price expectations in six months, 1 year, 2 years, and 5 years. Chart 2 shows the average oil prices and ranges that firms reported.
Firms were asked what natural gas prices were needed on average for drilling to be profitable and for a substantial increase to occur across the fields in which they are active, as well as their price expectations in six months, 1 year, 2 years, and 5 years. Chart 3 shows the average natural gas prices and ranges that firms reported.

Firms reported what they expected oil and natural gas prices to be in six months, one year, two years, and five years. The average expected WTI prices were $76, $79, $84, and $88 per barrel, respectively. The average expected Henry Hub natural gas prices were $2.55, $3.04, $3.42, and $3.96 per million Btu, respectively.

Contacts were asked about their firms’ expectations in 2024 relative to 2023 (Chart 4). A strong majority of firms expect employment to either increase slightly in 2024 (43%) or remain close to 2023 levels (50%). Expectations for capital expenditures heading into the new year were mixed, with 33% each reporting expectations of a slight increase or slight decrease and 23% reporting they will remain close to 2023 levels.

Chart 4. Special Question: What are your firm's expectations in 2024 vs. 2023?

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Chart 4 is a bar chart showing firms’ expectations for capital expenditures and employment in 2024 vs. 2023. It shows the percent of firms that expect each to increase significantly, increase slightly, remain close to 2023 levels, decrease slightly, and decrease significantly.
Response Capital Expenditures Employment
Increase significantly 7 3
Increase slightly 33 43
Remain close to 2023 levels 23 50
Decrease slightly 33 3
Decrease significantly 3 0

District energy firms were also asked how much they expect key input prices to change from December 2023 to December 2024 (Chart 5). Only 3% reported they expect a significant increase, 30% reported a slight increase, 57% anticipate they will remain close to 2023 levels, and 10% expect a slight decrease.

Chart 5. Special Question: By how much do you expect prices for your firm's key inputs to change from December 2023 to December 2024?

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Chart 5 is a bar chart showing how much firms expect key input prices to change from December 2023 to December 2024. It shows the percent of firms that expect input prices to increase significantly, increase slightly, remain close to 2023 levels, decrease slightly, and decrease significantly.
Response Percent
Increase significantly 3.0
Increase slightly 30
Remain close to 2023 levels 57.0
Decrease slightly 10
Decrease significantly 0
Table 1 shows the percent of Tenth District firms that report an increase, decrease, and no change in selected energy indicators, as well as its diffusion index for quarter 4 versus quarter 3, quarter 4 versus a year ago, and expectations in six months. The energy indicators are Drilling/Business Activity, Total Revenues, Capital Expenditures, Supplier Delivery Time, Total Profits, Number of Employees, Employee Hours, Wages and Benefits, Access to Credit, Expected Oil Prices, Expected Natural Gas Prices, and Expected Natural Gas Liquids Prices.
Table 2 shows the quarter-over-quarter, year-over-year, and six-month expectations diffusion indexes for Drilling/Business Activity, Total Revenues, Capital Expenditures, Supplier Delivery Time, Total Profits, Number of Employees, Employee Hours, Wages and Benefits, and Access to Credit from the fourth quarter of 2020 to the fourth quarter of 2023. It also shows the profitable price, substantial increase price, and expected prices in six months, 1 year, 2 years, and 5 years for WTI crude oil and Henry Hub natural gas from the fourth quarter of 2020 to the fourth quarter of 2023.

Selected Energy Comments

“World demand is rising; investment hasn’t kept pace.”

“Consolidation in the Permian will lead to more orderly development.”

“Worldwide capital expenditures remain relatively low.”

“Any meaningful rise in gas price will be met with dry gas drilling.”

“It’s very hard to predict gas prices. Most operators just try to be efficient and make money at low costs.”

“There is an abundant supply of natural gas, driven mostly as a by-product of oil drilling.”

“Lack of infrastructure will prohibit being able to develop and connect supplies to growing markets.”

“LNG send-out capacity is currently driving domestic gas supplies. Current gas prices are insufficient to add new dry gas production.”

“Consolidation is more prevalent.”

“Well design optimization has been the most impactful use of AI. But AI is being utilized in all aspects of our business.”

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About the Energy Survey

Authors

Chad Wilkerson

Senior Vice President and Oklahoma City Branch Executive

Chad Wilkerson serves as Oklahoma City Branch Executive and Senior Vice President for the Federal Reserve Bank of Kansas City. Wilkerson began his career with Federal Reserve in …

Chase Farha

Research Associate

Chase Farha is a Research Associate in the Regional Affairs department at the Oklahoma City branch of the Federal Reserve Bank of Kansas City. In this role, his responsibilities …