A meme making the rounds on Twitter this week summarizes the cyclical nature of employment levels in the oil and gas industry.
The meme features three images of men from a bygone era hanging from a gallows. Two of the men are crying and wailing, obviously afraid of their fate. The captions under each of the men read “Twitter layoffs” and “Facebook layoffs.” The third picture shows a man standing upright with the words simply “Oil Field”. He stared at his fellow sufferers and asked, “First time?” – he asks.
I was reminded of this meme while reading this month’s Texas Petro Index summary by the Texas Energy Producers Alliance. The Texas Petro Index (TPI), compiled by economist Carr Ingham since 2003, measures the relative health of the Texas oil and gas industry. As the dominance of the vast Permian Basin, primarily located in Texas, has gained national prominence in recent years, the TPI has become increasingly relevant as an indicator of the relative health of the domestic industry as a whole.
Unsurprisingly, Ingham believes the health of the Texas industry is more robust amid higher commodity prices, which came in at 174.6 for September, well above the 134.1 recorded in September 2021. But this latest measure is far below the benchmark. The all-time high of 272.2 was reached in September 2014 before OPEC decided not to cut output amid rapidly rising output from US shale.
The following excerpt from this month’s Ingham Report is very important to the employment industry: Industrial employment growth slowed in September, compared with an average of 3,900 job additions in June, July and August. Upstream employment (jobs at oil and gas production/exploitation companies, service companies and drilling companies) rose above 193,000 in September, but remains well below the previous cyclical peak of around 241,000 jobs in December 2018.
So we see that despite the industry’s strong post-COVID recovery over the past 24 months, employment rates in Texas have only recovered to 80% of their pre-COVID levels. Compared to the record high of 307,300 TPI in December 2014, the decline in the total number of people in recent years becomes even more evident.
Many factors are influencing this limited employment recovery, some of which are related to efforts by companies to streamline operations and increase returns to investors. But in the oil field itself, companies are struggling to find willing and skilled workers for drilling and fracking 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 forced to find another job during the major layoffs in 2020 are not willing to put themselves and their loved ones at risk. through that struggle again.
These labor constraints are one of several factors limiting the pace of overall production recovery for the domestic industry. Still, Ingham notes, despite these and other limiting factors, the Permian Basin is actually a driver of growth across the nation, not just in Texas.
“Any major U.S. producing region or state that isn’t related to the Permian is either not growing production at all, or growing very slowly,” Ingham said. “That leaves Texas and the Permian to do the heavy lifting for the United States, and currently that means New Mexico’s 8th RR District and Lee and Eddy counties.”
Ingham further notes that the Permian Basin is the only major producing region in the United States that has fully recovered lost COVID production and returned to record and growing production. But overall, Texas has fallen short as other manufacturing basins continue to struggle. Among them is the Eagle Ford Shale in South Texas, where production in September remained below the pre-COVID peak of 535,000 barrels of oil per day (bopd).
New Mexico, which consists of Lea and Eddy counties in the southeastern corner, occupies most of the Permian’s Delaware Basin, and Utah, which produced just 121,000 barrels, also hit a new production record.
Ingham’s bottom line is that the oil and gas industry in Texas is healthy, but not as robust as it was during the recent boom. But the Permian Basin remains the center of the domestic industry, a fact that is unlikely to change anytime soon.