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 quite succinctly.

The meme features three photos of men of a long bygone era facing hanging on a gallows. Two of the men are crying and wailing, obviously frightened over their fate. Captions below each of the men read “Twitter layoffs” and “Facebook layoffs.” The third photo features a man standing stoically erect, captioned simply “Oilfield.” He is looking askance at his fellow doomed compatriots, asking, “First time?”

That meme came to mind while reading the findings of this month’s Texas Petro Index 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, situated mainly in Texas, has grown in national prominence in recent years, the TPI has become increasingly relevant as a measure of the relative health of the domestic industry overall.

Not surprisingly, Ingham finds the Texas industry’s health to be fairly robust during this time of high commodity prices, standing at 174.6 for the month of September, up substantially from the 134.1 recorded in September, 2021. But that most recent measure stands well below the all-time peak of 272.2 achieved in September, 2014, just before OPEC made its fateful decision not to cut production in the face of rapidly-rising production levels coming at the time from U.S. shale.

The following passage from Ingham’s report this month is very telling from an industry employment perspective: Industry employment growth slowed in September with fewer than 1,000 jobs added over the month, compared to an average 3,900 jobs added per month in June, July, and August. Upstream employment (jobs in oil and gas producing/operating companies, service companies, and drilling companies) climbed above 193,000 in September, but remains well below the previous cyclical peak of nearly 241,000 jobs in December 2018.

Thus we see that, despite the strong post-COVID recovery the industry has experienced over the last 24 months, upstream employment levels in Texas have only managed to recover to about 80% of their pre-COVID levels. The reduction in overall head count in recent years becomes even more obvious when compared to the record high recorded by the TPI of 307,300 in December 2014.

Many factors are impacting this limited employment recovery, some relating to efforts by companies 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. This is an industry that has undergone three major boom/bust cycles over just the last decade, and many workers who were forced to go find other employment during the major layoffs that took place during 2020 are simply not willing to risk putting themselves and their loved ones through that struggle again.

These limits on manpower constitute one of several factors that have put a cap on the pace of overall production recovery for the domestic industry. Still, Ingham notes that, despite these and other limiting factors, the Permian Basin is really the driver of growth not just in Texas, but across the national landscape.

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

Ingham further notes that the Permian Basin is the only major producing region in the United States to have fully recovered its lost COVID production and returned to record and growing production. But overall, the state of Texas has not managed to reach those levels, as other producing basins 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 made up of Lea and Eddy counties houses much of the prolific Delaware Basin segment of the Permian region, has recovered to new record high production levels, as has Utah, which produces just 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 has been during boom times of the recent past. But the Permian Basin remains the centerpiece of the domestic industry’s universe, a fact that is unlikely to change any time soon.