Business activity among oil and gas companies picked up in the third quarter, according to a survey of companies in Texas, southern New Mexico and northern Louisiana by the Dallas Federal Reserve.
The business activity index, which is a measure of sentiment among oil and gas companies in the Fed's Eleventh District, strengthened to 26.7 from 13.8 in the second quarter. A positive reading typically indicates expansion, while readings below zero generally indicate contraction. The survey also found that the outlook six months out has improved, with the index at 19.6 compared with 19.0 in the last quarter.
The survey, which was conducted between 14-22 September with responses from 154 companies, is the latest indicator of growing expectations that the prolonged downturn in US production has bottomed out and companies are ramping up activity as crude prices recover. The US drilling rig count has risen by more than 100 from the lowest in three decades touched in May and the pace of bankruptcies has slowed — all pointing to the industry's success in resetting their operations to turn economic at much lower oil prices.
"Overall, conditions in the oil and gas sector continued to improve in the third quarter," said Dallas Fed senior chief economist Michael Plante.
Almost 62pc of the respondents expect oil prices to be higher than they currently are, while 48pc see an increase in natural gas prices. The Appalachia region was most likely to see a step up in natural gas drilling in 2017. Henry Hub natural gas prices are expected to average $3/mmBtu in 2017. Around 46pc expect natural gas output to hold at this year's level in 2017, 35pc see an increase, and 20pc predict a fall.
Almost all the respondents said that the Nymex WTI price needs to be at or above $50/bl for a substantial increase in drilling, while over 90pc said the price needs to be $55/bl or more.
"Over 70pc of respondents think US crude oil drilling activity will substantially increase sometime before 2018, with the most frequent response being second quarter 2017," the Fed said.
While oil and natural gas production fell again in the third quarter, the pace of decline slowed. The oil production index was -10.2 compared with -19.7 in the second quarter, while the natural gas production index improved to -20.6 from -24.7.
But labor market conditions remained weak, with 13pc of companies reporting net hiring while 20pc noting net layoffs.
"Signs of the slump still remain visible as employment indicators remained soft, and respondents expressed concerns about continued oversupply in the oil market," Plante said.
