Texas energy expansion expected in coming months according to Dallas Fed

Fuel Fix:
The drilling business began turning around in the second quarter and oil executives are changing their tune about their prospects as crude prices rise, a new Dallas Fed survey shows.

The Federal Reserve Bank of Dallas’ gauge of energy business activity climbed out of the red and into the black in the second quarter, signifying some drillers are trying to grow after a two-year oil bust that bankrupted scores of energy companies. More than half of the 152 surveyed oil producers and equipment suppliers believe crude prices will end up higher than $55 a barrel by the end of this year.

“Oil prices are right on the cusp” of reaching profitable levels for the average U.S. driller, said Michael Plante, a senior research economist at the Dallas Fed. Companies said their oil fields break even from $50 to $62 a barrel. “There are a bunch of guys saying things have stabilized, which is definitely an improvement from the first quarter.”

If prices hold up, many plan to keep expanding this year and in 2017, the energy executives told the Dallas Fed in a survey released Wednesday. The anonymous survey is the central bank branch’s new tool to collect information from usually tight-lipped oil companies.

“Higher prices have at least lifted the mood of many in the industry, and people are starting to drill again, it seems,” one executive said.

Though most metrics of business activity remained negative in the second quarter, the survey shows the industry has begun to pivot in several areas. One in 5 companies reported a boost in capital spending, and 11 percent said they increased employment levels in the second quarter. Most, though, reported steady levels or declines in jobs, employee hours and wages and benefits.
Optimism has been in short supply until recently.  However, the price is already at breakeven or better for some wells.  It will be interesting to see if there is a new financing model for these wells that uses more equity financing instead of the highly leveraged debt financing used prior to the slump.


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