“$60 is like the new $100,” Dallas Fed economist Michael Plante told Reuters last month, commenting on the effect of the oil prices on the Texas economy.
Oil production in the Permian—the only U.S. shale play whose output didn’t decline during the downturn—is now booming and is fueling the economic growth in West Texas cities of Midland and Odessa. Employment is near all-time highs, unemployment is at record lows, home sales, building permits, and hotel revenues are surging. Wages are up, and so are prices.
Long-time residents are aware of the fact that the boom won’t last forever, but right now, the economy is booming, as is oil production in West Texas.
The EIA estimates that the Permian production hit 3.11 million bpd in April and is set to rise to 3.183 million bpd in May—the highest increase among the main U.S. shale plays.
According to the latest Dallas Fed Energy Survey, executives from 65 exploration and production firms put the average breakeven prices to profitably drill a new well at $47 a barrel for Midland in the Permian—the lowest among all U.S. oil basins. For existing wells, the survey found that Midland’s average oil price to cover operating expenses was $25 a barrel, with responses ranging from just over $10 to as much $50 per barrel oil. Midland’s average breakeven for existing wells is again the lowest in the United States. Related: Is The Golden Era For Renewables Around The Corner?
The cities of Midland and Odessa in the Permian are now booming in lockstep with the oil production in the area.
As early as in October last year, Midland ranked fifth in the ‘Fastest-Growing Cities in the U.S.’ ranking by WalletHub, which compared 515 cities of varying population sizes based on two key dimensions, Sociodemographics and Jobs & Economy. Midland ranked fourth in terms of midsize cities with the highest growth.
The U.S. Bureau of Labor Statistics said in March in its county employment and wages summary that Midland, Texas, had the largest percentage increase in employment between September 2016 and September 2017—10.4 percent—well above the national job growth rate of 1.0 percent. In Midland, the biggest jump in employment was in natural resources and mining, which gained 4,526 jobs in the year through September 2017—a 24.4-percent increase.
More recent data, as of February 2018, shows that Midland employment increased by 9.1 percent in February from a year ago, and unemployment rate dropped to 2.5 percent from 3.8 percent in February 2017. Taxable spending, car purchases, hotel and motel receipts, sales of existing homes, and permits for new homes all surged this year compared to last.
The record low unemployment, however, is a headache for business owners—not only in oil and gas—who struggle to find enough local staff for construction projects and restaurants, for example, Midland Mayor Jerry Morales told Reuters.
The unemployment rate in Odessa, Texas, dropped to 3.2 percent in February from 5.4 percent in February 2017. The oil industry remains “in sharp recovery mode in the region, though, and is pushing general economic growth to ever higher – and soon to be record – levels,” according to economist Karr Ingham at InghamEcon.
“And Midland-Odessa direct oil & gas employment, which did decline during the contraction, is rapidly increasing and has very nearly reached the pre-downturn high point and should do so in the coming month or two,” according to Ingham.
Yet, the rig count, drilling permits, well completions, and prices remain well below the peak 2014 levels. But this “is not to suggest the industry is in the midst of a slow recovery as it tries to crawl its way back to the salad days of the previous expansion; it does suggest that efficiencies have improved so greatly that those levels of activity are not presently needed to produce more petroleum in the Permian Basin than has ever been produced before,” said Ingham. Related: Cheap Hydrogen Could Soon Become A Reality
The record Permian production, however, has started to create bottlenecks in the biggest U.S. shale play—as a shortage of crews, frac sand, roads, trucks, pipeline takeaway capacity, and increased natural gas volumes out of oil wells threatens to slow down oil production growth.
According to S&P Global Platts assessments, Midland WTI crude averaged at an $8.25 a barrel discount to Houston WTI crude in April, surging from a $2.82 per barrel discount in February. Companies such as Noble Energy and Encana Corporation seek to reduce their exposure to Midland, Texas, crude prices.
Despite possible growth slowdown ahead, Midland and Odessa’s economies are for now feeling the Permian boom.
“The recovery from the downturn is swift and magnificent. And the ‘recovery’ phase is nearing its end –that will be accomplished when the Midland-Odessa Regional Economic Index reaches and exceeds its prior peak and moves into previously uncharted record territory,” Ingham said in mid-April.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
- How Oil Hedging Could Cost Companies $7 Billion
- China’s Growing Oil Demand Has Created A Geopolitical Dilemma
- Could Oil Actually Hit $300?