American Oil and Gas Reporter - January 2017 - 58

Outlook 2017
By way of comparison, The Federal
Reserve Bank of Kansas City released
its third quarter 10th District Energy
Survey in early October, which showed
42 percent of the companies it surveyed
planned to increase "drilling/business activity" within the next six months, while
37 percent said they would stay the same
and 21 percent expected a decline. The
10th District encompasses the western
third of Missouri; all of Kansas, Colorado,
Nebraska, Oklahoma and Wyoming; and
the northern half of New Mexico.
Asking its question another way, the
Deloitte survey shows 44 percent of its
respondents expect the Baker Hughes rig
count to run between 500 and 750 active
rigs this year while another 37 percent
put it between 250 and 500.
Correlating those drilling plans to capital expenditures, 65 percent of the Survey
of Independent Operators' active drillers
say they expect to increase their drilling
budgets in 2017, while 21 percent say
they will stay the same and 14 percent
anticipate a decrease (Figure 3).
Again, category 2 respondents are more
optimistic, with 80 percent anticipating
increased spending compared with 53 percent of category 1 drillers. This time gas
well drillers are more upbeat, with 73 percent projecting increased spending compared with 63 percent of oil well drillers.
Deloitte reports 42 percent of the com-

panies it contacted for its 2016 Oil and
Gas Industry Survey project an increase
in exploration expenditures this year,
while 26 percent each expect expenditures
to either stay the same or go down.
Grant Thornton says 45 percent of
the companies it surveyed expect to increase capital expenditures this year while
fewer than 10 percent expect a decrease.
A year earlier, the firm notes, only 36
percent expected increased capex in 2016
and 32 percent projected a decline.
Price Expectations
One place where various surveys are in
reasonable agreement is the price on which
operators base their 2017 drilling plans.
Respondents to the Survey of Independent
Operators tell AOGR their plans anticipate
a West Texas Intermediate spot price at
Cushing, Ok., of $51.94 a barrel and a
$2.98 an Mcf spot price for natural gas.
Respondents to Evercore ISI's 2017
Global E&P Spending Outlook also based
drilling plans on $2.98 natural gas along
with $49.36 crude oil. And respondents to
the Kansas City Reserve Bank's 10th District
survey pointed to $53 a barrel and $3.45 an
MMBtu as "prices needed to be profitable."
Analysts' price predictions are a little
more varied. They range from Moody's Investors Service's $45 a barrel for crude oil
in its November 2016 Sector Comment, to
consultant Kent Moors' prediction of "low

FIGURE 4B
Natural Gas Prices at Which Operators
Would Alter 2017 Drilling Plans

FIGURE 4A
Crude Oil Prices at Which Operators
Would Alter 2017 Drilling Plans
96.2%

94.3%

100

97.1%

100
87.1%

90

79.2%

Cumulative Percent of Operators

Cumulative Percent of Operators

$60s by the end of first quarter 2017" in
his Dec. 1 e-letter, Oil & Energy Investor.
The U.S. Energy Information Administration is fairly conservative, projecting a
first quarter average WTI price of $49.00 a
barrel, rising to $51.00 by the third quarter
and $53.65 in the fourth quarter, for a 2017
yearly average of $50.66. Respondents to
the Kansas City Reserve Bank's 10th District
survey say they expected oil to be just $49
a barrel at year-end 2016, but to rise to $57
a barrel by year-end 2017.
Various other predictions are in the
$55-$57 a barrel range, including RBC
Capital Markets, which predicates its
$55.76 2017 average price projection on
2016 world oil demand growth of 1.4
MMbbl/d continuing through 2017. The
World Oil Bank assumes "OPEC will
succeed in limiting global production and
that U.S. production will flatten," to
project a $55.00 2017 average price.
For natural gas, Moody's once again
is on the low end, predicting an average
2017 price of $2.75 an MMBtu. The high
ground is covered by Drillinginfo, which
expects gas prices "to average $4.00 plus."
Producers' year-end 2016 to year-end
2017 gas price range reported by the Kansas
City Reserve Bank is $2.84-$3.33 an MMBtu. RBC Capital Markets comes in at $3.15
an MMBtu, and Raymond James expects
$3.25, based on a reversion to "normal"
winter weather driving a 1.6 billion cubic

80
67.9%
70
56.6%

60
50
39.6%

37.7%

40
30

24.5%

20
10
0

90
77.1%

80
70

64.5%

60

51.4%

50
40

35.5%
31.4%

30
20

16.1%

10
0

30

35

40

45

50

55

60

80

1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 5.50 6.00 6.50

WTI Spot Price at Cushing (Dollars per Barrel)

Wellhead Natural Gas Price (Dollars per Mcf)

Percentages in Figures 4A and 4B represent the cumulative total of
survey respondents that indicate they would have altered their 2017
drilling plans by the time the spot price for West Texas Intermediate
crude oil delivered at Cushing, Ok. (Figure 4A), or the wellhead

natural gas price (Figure 4B) reached the indicated amount. Prices at
which drilling would decrease are plotted to the left of the graphs in
downward curves; prices at which drilling would increase are plotted
to the right of the graphs in upward curves.

58 THE AMERICAN OIL & GAS REPORTER

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