The energy sector plays an important role in the Tenth Federal Reserve District and national economies. After dropping sharply in 2015 and for much of 2016, drilling rig counts and jobs in the energy sector have started to recover, which is likely to spur more oil and gas production and boost revenues in 2017. 

A decline in production

Oil and gas activity in the United States plunged in the second half of 2014. The timing and extent of the drop, however, varied across the region. Chad Wilkerson, a Kansas City Fed Oklahoma City Branch executive and economist, said oil and gas drilling activity in Oklahoma peaked in September 2014 at 214 active rigs and bottomed in May 2016 at 57 rigs, a decline of nearly 75 percent, slightly less than the 80 percent drop in the rest of the United States.

Employment declines

Mining sector employment, which includes mostly oil and gas activity, soon followed the drop in drilling production.  According to U.S. Energy Information Administration, U.S. oil and gas producers alone cut 142,000 jobs as of May 2016 since the industry’s peak employment levels in October 2014 of 538,000--—a 26 percent decline. That decline continued throughout the remainder of the year.

The start of a recovery in oil

Oil prices reached a low in the first quarter of 2016, even briefly dropping below $30 a barrel. Wilkerson said that after fluctuating in mid-2016, oil prices began to increase consistently again have stayed in a band of $50-$55 a barrel, although prices in mid-March through May dipped slightly below that range. The Kansas City Fed’s quarterly Energy Survey has shown that, on average, prices in that band make drilling profitable for firms headquartered in the Tenth Federal Reserve District.

A slight recovery in natural gas

The story for future natural gas drilling is somewhat similar, Wilkerson said. At the end of the fourth quarter of 2016, firms on average were expecting natural gas prices to be $3.64 per million Btu by year-end 2017. This was slightly more than the average profitable price they reported needing at the time. Although prices haven’t met expectation, gas has remained profitable for some firms in the Tenth District, but energy survey results suggest only modest expansion of natural gas drilling and production in 2017.

Employment shows signs of recovery

Data from the U.S. Bureau of Labor Statistics released in April showed continued monthly increases in the number of mining jobs, which includes oil and gas extraction. The jobs recovery began in November 2016 with the addition of 3,300 jobs. Mining added another 11,000 jobs in March, with 8,800 of them being in support activities for mining. Jobs in oil and gas extraction increased by 1,800. Employment in mining has now risen by 35,000 since hitting a recent low in October 2016. The increases varied across the United States and in the Tenth District.

The future

Although rig counts and employment in the industry are up from recent lows, which could lead to higher production and increased revenues, Wilkerson says current and expected prices for oil and natural gas remain at or just below the prices most firms say they need to be profitable, making the rebound in energy activity in the Tenth District somewhat slow-moving.

Further Resources

Read “The Oklahoma Economist: How strong is the Recovery in Oklahoma’s Gas and Oil Sector” by Chad Wilkerson.

Read “Tenth District Energy Survey.”

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