Energy activity was flat in the first quarter across much of the Rockies and the northern half of New Mexico, as the region’s exploration and production (E&P) companies said natural gas prices needed to average $3.02/MMBtu for drilling to be profitable, according to the Federal Reserve Bank (Fed) of Kansas City.

In the latest energy survey for the Tenth District, the Fed said the quarterly drilling and business activity index increased to 0 from minus 13, indicating unchanged activity in 1Q2019 following a decline in 4Q2018. Although indexes for total revenues and delivery time each increased and profits moved back into positive territory, the employment and wages and benefits indexes dipped further, and the index for access to credit remained negative.

“We are focusing on what we control, shoring up and improving our equipment, hoping that translates towards better efficiency, and doing so from cash flow and without taking on debt,” one E&P executive said. “Regardless of energy prices over the next six months, we want to reduce debt and be better positioned to ride out another downturn in pricing should that occur.”

The oil price expectations index increased to 34 from 29, and the natural gas price expectations index grew to 3 from minus 33.

E&P executives responding to the survey said the average gas price needed for drilling to be profitable was $3.02/MMBtu, with the average oil price averaging $52/bbl, down from $55 in the fourth quarter.

Natural gas prices are forecast to be $2.85/MMBtu in six months and $2.91 in one year, $3.05 in two years and $3.18 in five years, the survey indicated. West Texas Intermediate crude prices are expected to average $60/bbl in six months, $61 in one year, $65 in two years and $72 in five years.

“Ample supply of gas will constrain the increase in gas prices over the next few years,” a E&P respondent said. “Although export demand has grown (and will continue), there seems to be ample supply in the U.S. to cover this increase in demand.”

The Kansas City Fed, whose respondents are based in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri, said most of the year/year (y/y) indexes decreased moderately.

While the drilling and business activity index was flat, indexes for revenues, capital expenditures, and profits dropped. The employment, employee hours, wages/benefits and access to credit indexes also dipped slightly y/y.

The future drilling and business activity index jumped to 17 from minus 19, while indexes for future revenues, capital expenditures, and profits also rebounded. But the future employment and access to credit indexes declined, and the expected wages and benefits index dipped to its lowest level since 2Q2017.

More than 62% of respondents expect pipeline capacity to increase either significantly or slightly in the next year, while less than 12% said capacity will decrease.

“We anticipate access to pipeline capacity will improve significantly in the next six to 12 months,” said one respondent. “Regional pipelines (Permian and Anadarko basins) will come online. This will move the bottleneck downstream to the Gulf Coast.”

The 1Q2019 survey was conducted from March 18-29 and was based on 33 responses from E&Ps based in the region.