Report: Region’s activity, employment outlooks keep worsening for energy sector

KANSAS CITY, Mo. – Activity and employment at energy firms in the region were down during the third quarter that ended Sept. 30, and the outlook worsened as domestic oil prices continue to stay below $60 per barrel and financing is tightening, according to findings of a survey released Friday by the Federal Reserve Bank of Kansas City.

The survey queried energy firms in the Tenth District, which includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, and portions of western Missouri and northern New Mexico.

“As in the spring, firms on average reported needing domestic oil prices to be around $60 per barrel to be profitable,” said Chad Wilkerson, an economist with the Federal Reserve Bank of Kansas City. “They now don’t expect that price until at least 2017 and many are planning further capital spending cuts and layoffs.”

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The current profitable price of firms surveyed averaged $60 per barrel, with a range of $50 to $80. This was down slightly from the average of $62 reported in the first quarter of 2015 and down considerably from the $79 average in the third quarter of 2014.

Firms said that overall, financing was less available from all sources, but private-equity remained most accessible. Respondents commented that capital availability, particularly private equity, was expected to be adequate for firms with strong balance sheets.

Across all firms, employment was expected to be down by 7 percent next year. Services firms expected employment to be about 10 percent lower. Oil and gas extraction firms expected a 6 percent decline while pipeline firms expected employment to remain mostly flat.

Here is a sampling of comments from firms that were surveyed.

• “Because of low prices, several of our projects do not meet necessary hurdle rates. Since we are principally funded by equity, deployment of capital into new wells is reduced.”

• “There is still a lot of equity sitting on the sidelines waiting for a strong signal that we have hit bottom and that deals are being priced accordingly.”

• “The price of oil is too low to continue drilling, and we don’t expect it to recover for 18 to 24 months.”

• “We have a defensive posture with the balance sheet. We stress test every investment for commodity downside. Also dealing with increasingly hostile regulatory environment.”

• “Capital markets, while available, are much more expensive. Bank financing has constricted so alternative financing needs are necessary.”

• “Our plans are to operate within generated cash flow and adjust activity to meet this level of spending.”