Technological breakthroughs that sparked the Lower 48’s oil and natural gas revolution rocked economic activity in the Permian Basin, but efficiency gains reduced the need for people, creating a sort of conundrum, according to the Federal Reserve Bank of Dallas.
Business economist Garrett Golding and Dallas Fed research analyst Sean Howard, as it’s called, recently illustrated how productivity has improved in the Permian in West Texas and the New -Mexico. The Eleventh District monitors economic activity in the Energy Core which includes parts of Texas from New Mexico
However, fewer people are needed to keep drilled wells and platforms operating, even as production has increased.
“The region’s oil and gas companies employ fewer people today than when the shale oil boom began 11 years ago, even as oil production quadrupled,” the researchers said.
As national oil and gas production increased from 2010 to 2014, “hiring followed suit” across the Permian.
More than 900 rigs operated across West Texas and New Mexico during the first half of 2014, with the West Texas Intermediate (WTI) benchmark oil price “standing above $ 100 on barrel”.
Exploration and production companies (E&P), as well as their colleagues in the petroleum services sector (OFS), have revitalized activity in the largest basin of all. It is estimated that 330,000 people were employed in the Permian during the four-year period starting in 2010.
Since then, the labor market has been in free fall. First, the commodity price crash that began in late 2014. By 2015, drilling activity and capital spending collapsed in the Permian.
An estimated 289 E&P and OFS companies have gone bankrupt, shedding around 120,000 jobs in the energy sector. “The number of platforms fell below 200 in mid-2016,” the Dallas Fed researchers noted.
Unleash innovation
E&P and OFS operators have in turn triggered a series of improvements. Platforms have become more productive. Costs started to drop in 2015.
“This lowered breakeven prices for shale wells and allowed production to recover quickly after the downturn,” said Golding and Howard. “Oil production in Texas and New Mexico increased 14% between December 2014 and December 2017, while industry employment fell 29%.
Still, investors were dissatisfied. Demands have increased to improve free cash flow and return capital to shareholders. This led to a further reduction in the wage bill. The number of rigs declined until 2019. “Counterintuitively, oil production increased,” the researchers noted.
WTI and Brent prices collapsed again last year as demand evaporated due to the pandemic. In addition, there was an oil price war last spring between Saudi Arabia, which heads the Organization of the Petroleum Exporting Countries, and Russia, a frequent cartel ally.
These events in turn led to an “industry consolidation wave” and even more cost cutting, the Dallas Fed researchers noted.
There is no doubt that jobs have started to return as the pandemic subsides and travel intensifies. Recent data compiled by the Texas Workforce Commission suggested last month that the state’s upstream oil and natural gas employment increased by 1,600 jobs in May month / month, extending a recovery that started the last fall.
Yet it is far from what it was before the pandemic.
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“Technology is redefining operational roles,” said Golding and Howard. “While automation is in the early stages of deployment on drilling rigs, it is reducing staffing requirements. Remote monitoring of wells and other facilities, which have proliferated with Covid-19 workplace restrictions, has further reduced employment needs. “
The adaptations have changed the role of people working in the energy sector. It has also changed the cost structure of businesses.
For example, in Golding and Howard’s analysis of 14 independent E&P, general / administrative expenses fell in 2020 to $ 2.10 / boe on average from $ 2.96 / boe in 2018. These same expenses had exceeded $ 4 / boe on average in the early 2010s, they are noted.
“Job opportunities in the oilfields face aggravating pressure,” the researchers said. “Businesses need fewer people for more performance, as a slower pace of activity in the field sets in.
“However, since most businesses are as lean as they have ever been, another period of low prices is unlikely to result in further widespread job losses. Conversely, if prices soar, few operators should act as aggressively as they would in the past and drill more wells and hire more workers. ”
