AUSTIN — There’s no slowdown visible so far. But oil prices slumping below $60 per barrel have started to cast a shadow over booming South and West Texas, where crowded restaurants, expensive hotel rooms, convoys of heavy trucks and “help wanted” signs have become as common as scrub brush.
Rising production from the Eagle Ford Shale and the Permian Basin this year helped push Texas oil production to levels not seen in a generation, above 3 million barrels per day.
But since those summer days when West Texas Intermediate Crude, the U.S. benchmark, soared above $100, it has gone on a months-long slide. According to Plains Marketing LP, WTI and Eagle Ford Light crude was selling for around $57.50 per barrel Wednesday.
“Nobody in our universe is pleased to see what’s happened to pricing in the last four or five months,” Ben Shepperd, president of the Permian Basin Petroleum Association, said at a Wednesday event at the state Capitol.
Companies planning 2015 spending are slashing budgets by as much as 30 percent, he said. “You can’t do that without laying people off. It’s real stuff,” Shepperd said.
But it’s likely to take time before the slowdown makes itself obvious in the field. Most operators, service companies and suppliers are in long-term contracts that are fueling the frenzied level of recent activity, with more than 568 drilling rigs hunting oil just in the Permian Basin in West Texas and eastern New Mexico last week. Those contracts can be hard to untangle overnight, Shepperd said.
“At least right now you’re not seeing these huge numbers of layoffs from what I understand,” he said.
Shepperd spoke at an oil and gas policy briefing organized by the Eagle Ford Shale Legislative Caucus and the House Energy Caucus. While the presentations were about topics such as community impact, regulation and industry innovation — with an eye toward whether the regions can secure more help from the state for truck-damaged roads — the falling price of oil crept into nearly every discussion.
“As we’ve seen in the recent decline in oil prices, there is no certainty,” said Todd Staples, the former Texas agriculture commissioner and the new president of the Texas Oil & Gas Association. While the state has benefited from increases in oil-related jobs and tax revenue, budgeting “just got a little bit tighter” for lawmakers, he said.
For now, about 40 percent of the nation’s drilling rigs are in either the Permian Basin or Eagle Ford, and nearly all of them are drilling for oil, according to the Baker Hughes rig count.
Economist Karr Ingham, who works with the Texas Alliance of Energy Producers, said basic supply and demand principles are at work. Higher prices stimulated oil production. Now that so much new shale production has come online, prices have dropped, pulling down the cost of gasoline with it.
Lower gasoline prices benefit consumers, but not Texas. “The nation will benefit,” Ingham said. “But Texas is not going to experience a net economic benefit from this price decline.”
Chris Faulkner, CEO and president of Breitling Energy, said the industry will have to focus on cutting costs and operating in clearly profitable areas. “This industry has a very uncanny way of reinventing itself when it has to,” Faulkner said. “So I don’t think we’re down and out.”
Shepperd said companies could recalibrate in 2015. “They’re going to cut where they can,” he said. Companies will focus on the best of the best, the sweet spots in each field, with some companies weathering the price storm better than others. “Each well, each project, each company has its different set of economics,” Shepperd said.
The Eagle Ford’s biggest operator, EOG Resources, has said it can turn a profit in South Texas even if oil slides under $40 per barrel.
Article Author: Jennifer Hiller, San Antonio Express-News