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Oil, gas drilling activity slows in 3Q: Kansas City Fed

13 Oct 2017, 5.58 pm GMT

Oil, gas drilling activity slows in 3Q: Kansas City Fed

Houston, 13 October (Argus) — Oil and gas drilling activity in some key US states slowed in the third quarter, but executives expect higher prices.

Most indexes fell but remained positive, with the drilling and business activity index declining to seven in the third quarter from 43 in the second and 26 a year earlier, the Federal Reserve Bank of Kansas City said in its latest quarterly survey. The survey covered the Tenth Federal Reserve District, which includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri.

Respondents said average oil price needed for drilling to be profitable was $51/bl, with a range of $40-$75/bl, which was unchanged from the start of the year. But the average natural gas price needed was $3.05/mn Btu, with a range of $2-$4/mn Btu. This was down from $3.38/mn Btu in the first quarter.

On future oil and gas prices, respondents saw modest increases, to $52/bl WTI, $55/bl, $58/bl and $65/bl in six months, one year, two years, and five years, respectively. Expected Henry Hub gas prices for the same timeline was $3.01/mn Btu, $3.11/mn Btu, $3.30/mn Btu, and $3.73/mn Btu.

The survey also asked firms how they expected the oil rig count to change over the next six months compared to current levels. Three-fourths of respondents expected the count to remain close to current levels, with slightly more than a fifth expecting an increase, and only a few predicting a drop.

A majority of respondents expected US production to increase from current levels, to an average of 9.9mn b/d by the end of 2018.

On the impact of Hurricane Harvey, which hit the Gulf Coast at the end of August, almost half estimated a medium impact and a fifth estimated high impact. Responses were mixed for offshore production, but over a third expected a medium impact. The impact to onshore production, pipelines and transportation was largely expected to be low.

The number of employees index, or the measure of employment, fell to 17 from 23 in the second quarter, but recovered from minus 11 a year earlier.

The total revenue index improved to 23 from 20 in the second quarter and five a year earlier, while that for total profits rose to 21 from three in the second quarter and minus 10 a year earlier.

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