A meme making the rounds on Twitter this week captures the cyclical nature of employment levels in the oil and gas industry quite succinctly.
The meme features three photos of men from the past facing each other hanging on a gallows. Two men are crying and wailing, obviously afraid of their fate. The captions below each man read “Twitter layoff” and “Facebook layoff”. The third photo features a man standing stoically upright, captioned simply “Oilfield”. He looked questioningly at his destined compatriot, asking, “The first time?”
That meme came to mind when 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 in the state of Texas. As the dominance of the vast Permian Basin, located mainly in Texas, has grown in national prominence in recent years, TPI has become increasingly relevant as a measure of the relative health of the entire domestic industry.
Not surprisingly, Ingham found the health of the Texas industry to be quite strong at this time of high commodity prices, standing at 174.6 for September, up significantly from 134.1 recorded in September, 2021. The all-time peak of 272.2 was achieved in September, 2014, just before OPEC made its fateful decision not to cut production in the face of fast-rising production levels coming in time from the US shale.
The following excerpt from this month’s Ingham report speaks volumes from an industry employment perspective: Manufacturing job growth slowed in September with fewer than 1,000 jobs added for the month, compared to an average of 3,900 jobs added per month in June, July, and August. Upstream employment (jobs at oil and gas production/operating companies, service companies, and drilling companies) rose above 193,000 in September, but remained below the previous cycle’s peak of nearly 241,000 jobs in December 2018.
So we see that, despite the strong post-COVID recovery the industry has experienced over the last 24 months, the upstream employment rate in Texas has only recovered to about 80% of its pre-COVID level. The reduction in the total number of heads in recent years becomes more obvious when compared to the record high recorded by the TPI of 307,300 in December 2014.
Many factors are influencing this limited job recovery, some of which are related to efforts by companies to streamline operations and improve 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. This is an industry that has experienced three major boom/bust cycles over the past decade, and many workers who are forced to find other jobs during the major layoffs that occur during 2020 are simply not willing to risk putting themselves and their loved ones at risk. more through the struggle again.
These labor constraints are one of several factors that are hindering the pace of production recovery for domestic industries. Still, Ingham says that, despite these and other factors, the Permian Basin is truly a growth driver not only in Texas, but in the national landscape.
“Any major producing area of the US or any country not connected to the Permian is either not producing at all, or doing so very slowly,” Ingham said. “That leaves Texas and the Permian to do the heavy lifting for the United States, and now that means PRC district 8 and Lea and Eddy counties in New Mexico.”
Ingham further stated that the Permian Basin is the only major producing region in the United States that has recovered lost COVID production and is returning to record and growing production. But overall, the state of Texas has not been able to reach those levels, as other producing basins continue to struggle. Among them is the Eagle Ford Shale region in South Texas, where production for September remained 535,000 barrels of oil per day (bopd) below pre-COVID levels.
New Mexico, whose southeastern corner consists of Lea and Eddy counties home to many parts of the Delaware Basin prolific Permian region, has recovered to a new high production level record, as well as Utah, which produced only 121,000 bopd.
Ingham’s bottom line is that the oil and gas industry in Texas is healthy, but not as strong as it was in the boom days of the past. But the Permian Basin remains the center of the domestic industrial universe, a fact that is unlikely to change anytime soon.