Oil industry execs feeling more optimistic, Fed survey shows

HOUSTON – 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.”

RELATED: Drillers may return to dormant wells as confidence in recovery grows, Rystad says
RELATED: Drillers may return to dormant wells as confidence in recovery grows, Rystad says

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.

“There are still plenty of signs the slump is still ongoing, but it’s moderating,” Plante said. “It’ll be interesting to see whether (those indices) turn positive in the third quarter, suggesting we really have hit a turning point.”

Half of the oil explorers in the survey said their outlook for the next six months has improved, and nearly a quarter of the energy companies believe the oil market will come back into balance in the last three months of the year. Nearly half the group said growing oil demand would fix the glut, while nearly one-third cited falling U.S. oil production.

Some executives said they’re cautiously optimistic that the rise in oil prices has taken hold permanently, but they’re still waiting to see how confident the market is before returning to the oil patch. Others were more skeptical.

“I am not as optimistic as some that the recent increase in the oil price indicates a turn,” one oil field services executive said in the survey. “While I believe that we may not see the price in the $20 to $30 range per barrel, I do not see it moving significantly upward until second quarter 2017.”