Oil and gas activity in the U.S. Midwest and Rockies fell sharplyin the fourth quarter, but is expected to recover over the next six monthsdespite a weak outlook for natural gas, according to a survey released on Friday by the Federal Reserve Bank of Kansas City.

The drilling and business activity fell to -33 from -13, according to the survey, which polls producers from states including Colorado, Wyoming, Oklahoma and the northern half of New Mexico.

Lower natural gas prices in last six months of 2023 likely pressured the drop in activity, Chad Wilkerson, a senior vice president at the bank said.

U.S. gas futures plunged by 44% in 2023, while crude oil futures fell 11%, prompting a 20% drop in the total number of drilling rigs in the country last year. RIG/U

Activity is anticipated to pick up modestly in the next six months, but survey participants expect profits to stay flat, hampered in part by lower natural gas prices.

Henry Hub gas prices NGc1 are projected to average just $2.50 per million Btu in six months, below the $3.12 per mmBtu needed to drill profitably, according to the survey.

“There is an abundant supply of natural gas, driven mostly as a by-product of oil drilling,” said an unnamed survey participant.

Gas prices need to rise to $4.04 per mmBtu to spur a substantial increase in drilling, participants said, but they do not anticipate Henry Hub to average over$4 for the next five years.

Henry Hub futures settled at $3.31on Friday, up roughly 8% ahead of extreme cold across much of the country.

The outlook for oil prices was more upbeat, with respondents anticipating crude prices CLc1 to average $75 a barrel within six months, well above the $64 a barrel needed to make a profit.

Oil prices would need to average $84 a barrel to substantially increase drilling, they said. U.S. crude futures settled at $72.68 on Friday.

Only 40% of firms said they expect to increase capital spending in 2024, while roughly another 40% anticipate decreasing spending.

“Lack of infrastructure will prohibit being able to develop and connect supplies to growing markets,” said one survey participant.

The survey was conducted between Dec. 15 and Jan. 3 and included 31 responses from firms in the U.S. Midwest and Rockies.
Source: Reuters (Reporting by Georgina McCartney in Houston, Editing by Marguerita Choy)