Permian Basin Drives The U.S. Oil Industry Despite Limits On Growth

A meme making the rounds on Twitter this week captures the cyclical nature of employment levels in the oil and gas industry.

The meme features three images of men from long ago facing the gallows. Two of the men were crying and sobbing, obviously terrified of their fate. The captions below each of the men read “Twitter layoffs” and “Facebook layoffs.” The third photo features a man standing still, with the caption “Oilfield.” He looks down at his fellow doomed compatriots, asking, “First time?”

That meme came to mind while reading this month’s Texas Petro Index findings by the Texas Alliance of Energy Producers. The Texas Petro Index (TPI), compiled since 2003 by Economist Karr Ingham, measures the relative health over time of the oil and gas industry within the state of Texas. As the dominance of the vast Permian Basin, located primarily in Texas, has grown in national prominence in recent years, the TPI has become more relevant as a measure of the relative health of the local industry overall.

Not surprisingly, Ingham found that the health of the Texas industry is relatively stable during this period of high commodity prices, coming in at 174.6 for the month of September, up from the 134.1 recorded in September, 2021. But that latest measure was below the all-time peak of 272.2 reached in September, 2014, before OPEC made its fateful decision not to cut production in the face of rapidly rising production levels coming from the US shale.

The following excerpt from this month’s Ingham report is very clear from an industrial employment perspective: Industrial job growth slowed in September with fewer than 1,000 jobs added in the month, compared to an average of 3,900 jobs added each month in June, July and August. Upstream employment (jobs at oil and gas producing/operating companies, service companies, and drilling companies) rose above 193,000 in September, but remains below the previous cyclical peak of nearly 241,000 work in December 2018.

So we see that, despite the strong post-COVID recovery the industry has experienced over the past 24 months, upstream employment levels in Texas have only recovered to about 80% of their pre-COVID levels . The reduction in the total head count in recent years becomes more pronounced when compared to the highest TPI recorded of 307,300 in December 2014.

Many factors are affecting the limited job recovery, some related to companies’ efforts to streamline operations and increase investor returns. But in the oil patch itself, companies continue to struggle to find willing and qualified workers to staff drilling and frac crews, as well as general field operations. It’s an industry that has gone through three major boom/bust cycles in the past decade, and many workers who were forced to find other jobs during the massive layoffs that took place in 2020 simply weren’t willing to risk themselves and their loved ones. again through that struggle.

These manpower limitations constitute one of several factors that have placed a limit on the speed of the general recovery of production for domestic industry. However, Ingham said that, despite these and other limiting factors, the Permian Basin is indeed the driver of growth not only in Texas, but in the entire national landscape.

“Any major US production region or state that is not connected to the Permian is either not growing production, or is doing so very slowly,” Ingham said. “That leaves Texas and the Permian to do the heavy lifting for the United States, and right now that means RRC district 8 and Lea and Eddy counties in New Mexico.”

Ingham further noted that the Permian Basin is the only major production region in the United States that has fully recovered from lost production due to COVID and returned to record and growing production. But overall, the state of Texas has not reached those levels, while other basin producers continue to struggle. Among those is the Eagle Ford Shale region of South Texas, where production for September remained 535,000 barrels of oil per day (bopd) below pre-COVID highs.

New Mexico, whose southeastern corner comprising Lea and Eddy counties contains much of the Delaware Basin part of the Permian region, recovered to new record high production levels, as did Utah , which produces only 121,000 bopd.

Ingham’s bottom line is that the oil and gas industry in Texas is healthy, but not nearly as robust as it was during the boom years of the past. But the Permian Basin remains the center of the domestic industry universe, a fact that is unlikely to change anytime soon.