Kansas Fed sees improved oil and gas outlook

OREANDA-NEWS. July 11, 2016. US oil and gas companies in the midcontinent and the Rocky Mountain region see an improved outlook after prices moved higher in the second quarter of 2016, according to a survey of executives by the Federal Reserve Bank of Kansas City.

But a majority said that WTI crude needs to rise to about \\$64/bl and Henry Hub natural gas needs to increase to \\$3.65/mmBtu, to see any substantial increase in drilling activity.

WTI prices hit a 2016 low below \\$27/bl in the first quarter but prices increased by 26pc in the second quarter. Crude prices today are hovering near \\$45/bl.

The survey includes companies in the Fed's tenth district which includes Kansas, Colorado, Nebraska, Oklahoma, Wyoming, a portion of Missouri and the northern half of New Mexico.

Business activity was stable in the second quarter indicating that it was no longer significantly declining.

Respondents were bullish on prices. They predicted that WTI would rise to \\$53/bl by the end of 2016 and to \\$62/bl by the end of 2017.

The majority of respondents did not plan to make any changes to employment levels, but some planned to fill a couple of important vacancies from "a large pool of talent."

The executives differed on their views of future mergers and acquisitions (M&A). About one third expect large increases in M&A but little change in defaults and bankruptcies, while another third expected little change in M&A but large increases in defaults and bankruptcies.

Some companies said that prices have been low for too long, causing highly leveraged companies to continue to default in the coming months. Others said that the recent price recovery would lead to some asset buying and acquisitions from better positioned companies.

A survey last week by the Federal Reserve Bank of Dallas showed a similar optimistic and bullish outlook compared to the previous quarter.