The Texas energy industry can expect to see more than its share of “restructurings, mergers and bankruptcies” in 2016, which will be “a tough year” due to continuing low prices resulting from an oil glut. That was the view of Robert Kaplan, president and CEO of the Federal Reserve Bank of Dallas, in a keynote talk Friday at a luncheon presented jointly by the Dallas Regional Chamber, the Fort Worth Chamber, and the North Texas Commission.
Kaplan, a former Goldman Sachs vice chair who succeeded Richard Fisher at the Dallas Fed last September, said oil currently is “oversupplied” globally by about 1 million barrels a day. But because of increasing demand totaling about 1.2 million barrels per day, that oversupply should drop by year’s end to 500,000 barrels a day—a figure that is still excessive, Kaplan said.
Because “supply reductions have been slow to materialize” in Texas and other states, despite cutbacks in drilling and capital expenditures by energy companies, it won’t be until mid-2017 that supply and demand return to some degree of balance, Kaplan said. Meantime growth in Houston, where many energy companies are based, “has ground to a halt,” he noted, while Dallas, Austin, and San Antonio have continued to grow.
The energy industry now accounts for just 2 percent of Texas employment and 10 percent of the state’s GDP, Kaplan said. That’s in contrast to the 1980s, when the state was much more energy-dependent. As a result, he added, he is “very optimistic about the future of this state” and the Dallas district, in part because of strong in-migration to the area. Kaplan, who was previously a dean at the Harvard Business School, noted that he is part of this in-migration himself, as are “most, if not all, of the CEOs I know.”
The Friday luncheon was sponsored in part by Fidelity Investments and Fort Worth-based BNSF Railway Co. BNSF’s executive chairman, Matthew Rose, sits on the Dallas Fed board of directors and, according to Kaplan, played a key role in recruiting him to the Fed from Harvard. “Matt called me in the spring about something else” and said we have an opening and would I be interested? Kaplan recalled.