The Permian Basin is fueling the US oil industry despite growth constraints

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

The meme features three photos of men from a bygone era hanging from a gallows. Two of the men cry and cry, obviously afraid of their fate. The captions below each of the men read “Twitter Layoffs” and “Facebook Layoffs.” The third photo shows a stoically standing man with the simple caption, “Oil Field.” He looks askance at his doomed compatriots and asks, “First time?”

This meme came to mind while reading this month’s Texas Petro Index results from the Texas Alliance of Energy Producers. The Texas Petro Index (TPI), compiled by economist Karr Ingham since 2003, measures the relative health of the oil and gas industry in the state of Texas over time. As the dominance of the vast Permian Basin, located mostly in Texas, has increased in national importance in recent years, the TPI has become more relevant as a measure of the relative health of domestic industry overall.

Not surprisingly, Ingham notes that the health of Texas industry is fairly resilient during this period of high commodity prices, reading 174.6 for the month of September, a significant increase from the 134.1 recorded in September 2021. But this latest reading is well below the all-time high of 272.2 set in September 2014, just before OPEC made its fateful decision not to cut production amid the rapidly rising US shale oil production levels at the time.

The following passage from Ingham’s report this month is very revealing from an employment perspective in the industry: Manufacturing job growth slowed in September with fewer than 1,000 jobs added during the month compared to an average of 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) rose to over 193,000 in September but remains well below the previous cyclical peak of almost 241,000 jobs in December 2018.

So what we see is that despite the strong post-COVID recovery that the industry has seen over the past 24 months, upstream employment levels in Texas have only risen to about 80% of their pre-COVID levels. The decline in overall employment over the last few years is even more evident when comparing the TPI’s record high of 307,300 in December 2014.

Many factors are affecting this limited employment recovery, some related to companies’ efforts to streamline operations and boost investor returns. But in the oilfield itself, companies continue to struggle to find willing and skilled workers for drilling and frac crews and general field operations. This industry has endured three major boom-bust cycles in the last decade, and many workers who were forced to seek alternative employment during the big layoffs of 2020 simply aren’t willing to risk themselves and their loved ones those through this fight again.

These labor constraints are one of several factors that have limited the pace of overall output recovery in domestic industry. Still, Ingham notes that despite these and other limiting factors, the Permian Basin is truly the driver of growth not just in Texas but across the national landscape.

“Any major US producing region or state that isn’t connected to the Permian either isn’t expanding production at all or is expanding very slowly,” says Ingham. “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 goes on to note that the Permian Basin is the only major producing region in the United States that has fully recovered its lost COVID production and returned to record and growth production. Overall, however, the state of Texas has failed to reach this level as other producing basins continue to struggle. That includes the Eagle Ford Shale region of south Texas, where September production remained 535,000 barrels of oil per day (bopd) below pre-COVID highs.

New Mexico, whose southeastern corner consists of Lea and Eddy counties and is home to much of the productive segment of the Permian Delaware Basin, has rebounded to new record production levels, as has Utah, which is producing just 121,000 barrels per day.

Ingham concludes that the Texas oil and gas industry is healthy, but not nearly as resilient as it has been in recent booms. But the Permian Basin remains at the heart of the domestic industry universe, a fact that is unlikely to change any time soon.