Permian petroleum economy continues to climb Still far from its 2014 peak, Petroleum Index continues to record a thriving industry

Helmerich & Payne motor man Michael Palmer, left, and floor hand Travis Palmer, right, move equipment as a section of pipe is drilled into the ground for oil and gas extraction on a Diamondback Energy lease Wednesday, Sept. 14, 2016 outside of Midland. ( Michael Ciaglo / Houston Chronicle ) less Helmerich & Payne motor man Michael Palmer, left, and floor hand Travis Palmer, right, move equipment as a section of pipe is drilled into the ground for oil and gas extraction on a Diamondback Energy lease ... more Photo: Michael Ciaglo/Houston Chronicle Photo: Michael Ciaglo/Houston Chronicle Image 1 of / 1 Caption Close Permian petroleum economy continues to climb 1 / 1 Back to Gallery

It hasn’t been necessary for the Texas Permian Basin Petroleum Index to return to its record highs for the region to benefit from its expansion.

The index remains 70 points below its peak reached at the end of 2014 as crude prices began to fall, but the April index is 28 percent above April 2017 levels and it rose more than 7 points from March to April.

“If the index gets back to previous peak, it will be awhile before that happens, or if it will happen,” said Karr Ingham, the Amarillo economist who prepares the index. He said it’s unlikely the index will return to those highs anytime soon barring an increase in crude prices beyond their current levels.

And given the surge in crude and natural gas production and the region’s oil and gas employment reaching new highs, he said that may not be a bad thing.

“The wild card is pipeline capacity and what it’s doing to West Texas Intermediate prices,” Ingham said, calling the constraints the issue of the day. What producers are getting for their crude is not equal to West Texas Intermediate posted, he said.

“It’s a fair amount lower. Yet they’re churning out barrels not just at record levels but with record growth rates,” said Ingham.

He said April oil production volumes were 22.5 percent higher than April 2017 and is up 19.2 percent so far this year compared to the first four months of last year. He predicted those numbers will move even higher in the coming months, with the Energy Information Agency estimating Permian Basin production surpassing 3 million barrels a day in March and hitting 3.14 million barrels a day in April. That estimate includes the New Mexico portion of the Permian.

Ingham said the price disparity, which continues to rise as takeaway capacity remains tight, has reached $18 a barrel and is growing.

“It’s almost like there’s no market for it because producers can’t move it,” he said. “Where is it all going? I assume that area is swimming in crude oil.”

It is from the markets to producers to slow down production, he said.

“Companies make their own intracompany decisions based on their individual economics, but this is a price signal,” he said.

If as an increasing number of industry executives and analysts predict, the high price discounts prompt operators to shut in wells, Ingham said that will impact the Permian rig count and affect growth in oil field activity.

“If they had the ability to get to market all they were producing, that area would grow great guns for the foreseeable future. This will rein things in a bit,” he said.

“Market constraints influence the decisions made by companies day in and day out. In this case, we’re talking about pipeline constraints. It’s the same with employment,” said Ingham.

Although the region’s oil and gas employment has regained all the jobs lost during the downturn, there is still a labor shortage, he said. The good news is these problems tend to solve themselves, he said, explaining that wages are high and getting higher, which will attract more workers.

Estimated payroll oil and gas jobs in the Midland-Odessa metro area totaled about 39,640 in April, an increase of 33.7 percent from April 2017. For the first four months of 2018, the estimated payroll has risen 15.2 percent or more than 4,400 jobs.

“That means about 14,100 jobs have been added to metro area oil and gas employment since the cyclical low point in 2016, an increase of about 55 percent since that time. In Odessa alone, of the over 7,000 total jobs added thus far in the current expansion, nearly 4,200 of those are direct oil and gas jobs,” said Ingham.

April crude prices averaged $62.80 per barrel, up 33.6 percent from $47 last April, and the year-to-date average of $60.26 is 25.7 percent higher than the $47.94 averaged a year ago.

The rig count in the Texas portion of the Permian Basin averaged 358 in April, 26.5 percent higher than the 283 last April. The year-to-date average is 347, up 34.3 percent from 258 averaged in the first four months of 2017. Ingham said when the New Mexico portion of the Permian is factored in, the Baker Hughes rig count was 449 in April, the highest since January 2015.

The Railroad Commission issued 741 drilling permits in April, jumping 52.5 percent from the 486 issued in April 2017. In the first four months of 2018, the commission has issued 2,741 drilling permits, 18.7 percent more than the 2,309 issued in the same period a year ago and the highest since 2013.

Oil completions, which Ingham said had been lagging, are rising rapidly and exceeding year-ago levels by more than 70 percent. Operators reported 446 oil completions in April, 72.2 percent more than the 259 reported last April. Operators have completed 1,915 oil wells so far this year, 74.7 percent more than the 1,096 completed a year ago.

Natural gas prices retreated in April, slumping 17 percent to average $2.30 per Mcf from last April’s average of $2.77. Natural gas prices so far this year are averaging $2.48 per Mcf, down 11.3 percent from last year’s year-to-date average of $2.79.

Natural gas well completions soared, however, with operators completing 46 wells in April, 318.2 percent more than the 11 reported last April. In the first four months of 2018, operators completed 185 gas wells, up 311.1 percent from the 45 completed last year. Natural gas production volumes in April were up 17.4 percent from last April and are up 16.6 percent so far this year from a year ago.