Texas oil and gas industry in 'new cycle of expansion'

A sign pointing the way to a sand loading site at the Superior Silica Sands sand mine is shown on Tuesday, March 28, 2017, in Kosse, Texas. Demand for sand is surging as oil and gas production in the Permian Basin is booming again. Not only is the need for more sand on the rise with the increase in oil and gas production in west Texas, but much more sand is being pumed into each well now withi the emerging thesis that more sand equals more oil extracted. ( Brett Coomer / Houston Chronicle ) less A sign pointing the way to a sand loading site at the Superior Silica Sands sand mine is shown on Tuesday, March 28, 2017, in Kosse, Texas. Demand for sand is surging as oil and gas production in the Permian ... more Photo: Brett Coomer, Staff Photo: Brett Coomer, Staff Image 1 of / 18 Caption Close Texas oil and gas industry in 'new cycle of expansion' 1 / 18 Back to Gallery

The oil and gas industry, after suffering through the worst downturn in at least three decades, is embarking on "a new cycle of expansion" as companies send dozens of new rigs into Texas oil fields, drill hundreds of more wells and hire thousands of workers.

The rig count is up 80 percent in Texas over the first quarter last year. Drilling permits have doubled, to 1,300. And state oil and gas employment has risen by 9,000 from the trough in September, according to Texas Petro Index, a monthly report on the state's oil and gas activity released this week.

"We still have a long way to go," said energy economist Karr Ingham, who created the index. "But 2017 is going to be a year of recovery and expansion in the Texas statewide oil and gas exploration and production economy."

As oil and gas companies begin reporting first quarter earnings this week, analysts, economists and executives say that a tentative recovery has gained traction and hit its stride. Oil prices have stabilized at around $50 a barrel in recent months, a level at which many companies can make money.

Energy companies have added jobs in Texas for five consecutive months, according to the Texas Workforce Commission, while manufacturing, which is tied closely to the state's oil and gas industry, added a record number of jobs in February. Meanwhile, a recent survey by the Federal Reserve Bank of Dallas found oil and gas executives upbeat, reporting increases in oil and gas production, drilling equipment needs, capital expenditures and salaries and benefits, and expecting an even better 2018.

"It's a pretty positive place to be for the energy industry right now," said Mine Yucel, an energy economist and head of the research department at the Dallas Fed.

Sector reinvigorated

A look at drilling rig counts in the U.S. Exxon Mobil and Chevron plan to unleash more drilling rigs in the Permian Basin, the region at the heart of the latest oil rush.

Adam Anderson, chief executive at Innovex Down Hole Solutions, an oil well tool designer, manufacturer and service provider based in The Woodlands, said revenues at the privately held company have nearly doubled from a year ago as orders from West Texas' booming Permian Basin, North Dakota's Bakken and South Texas' Eagle Ford have skyrocketed.

"The recovery is on and we're feeling it," he said. "The challenge we have now is being able to keep up with the growing demand our customers are putting on us."

The industry was devastated by the crash in crude prices, from more than $100 a barrel in 2014 to less than $27 last year. Companies posted quarterly losses last year that sometimes exceeded $1 billion. More than 200 oil production and service firms declared bankruptcy. More than 100,000 Texans lost jobs. And while balance sheets improved late last year, earnings showed a tide stemmed, not stopped.

But analysts and economists expect first quarter earnings this year to reveal a sector reinvigorated.

The Houston pipeline company Kinder Morgan, the first in the energy sector to report earnings, said Wednesday that its profits climbed 45 percent to more than $400 million and revenues rose 7 percent to $3.4 billion. Executives said that they are hoping next year to begin restoring the company's dividend, slashed by 75 percent as the bust dragged on.

"We're going to have the fire power, we believe, to significantly raise the dividend," Executive Chairman and co-founder Richard Kinder said on an earnings call Wednesday.

Encouraging signs

The industry had other good news this week: Oil and gasoline stockpiles fell for the second consecutive week, a sign the industry finally may be working through its stubborn supply glut.

And on Thursday, OPEC and other major producers reached an initial agreement to extend output cuts through the end of the year, in advance of the cartel's formal meetings in May.

Still, economists warn, the world remains awash in oil and the industry remains far from regaining the peak activity reached in June 2014, when oil traded at $107 a barrel.

Global oil inventories remain above five-year averages, despite the nearly four-months of output cuts by the Organization of the Petroleum Exporting Countries. Increased production by U.S. shale drillers and other non-OPEC nations have offset much of OPEC's cuts.

Texas energy economist Ray Perryman cautioned that the rebound is only a few months old, and no one knows whether increased U.S. production or other factors will undermine it. But, he added, "Given the fairly rapid growth in activity and employment, it's hard not to call it an expansion."