The West Texas oil industry is booming thanks to new technology that has helped bring breakeven costs down to as little as $25/barrel. CNBC photo by Morgan Brennan.
Unemployment rates sink as West Texas oil boom fuels economy
New technology that helps drilling companies extract much more oil from each acre for less money is helping fuel the West Texas oil boom.
“$60 is like the new $100,” Dallas Fed economist Michael Plante told Reuters. The Dallas Fed’s most recent survey showed breakeven costs are now as little as $25/barrel.
Companies no longer need $100/barrel oil to make healthy profits.
With advanced technology, oil companies operating in the Permian can now drill wells faster and put more wells on a single site. The new tech also allows companies to find the best angles and depths to squeeze the most oil out of each shale layer.
According to Waco, Texas-based economist Ray Perryman, the changes have boosted per-employee output by Texas oil and gas companies to about $820,000.
“Companies are making enough money to be able to afford to pay higher wages,” Perryman told Reuters.
The Permian basin stretches from West Texas into eastern New Mexico. Two cities benefitting from the expanded oil operations are Midland and Odessa, Texas, regional bases for major oil companies, including Occidental Petroleum Corp, Chevron, Apache and Pioneer Natural Resources.
“It is a full-fledged boom,” Dale Redman, chief executive of Propetro told Reuters. Propeto is based in Midland, Texas, and supplies heavy duty horsepower to drill sites.
Redman says he’s tripled his workforce since early 2016 and has had to hire workers from areas hundreds of miles away. He adds that over half of his employees make over $100,000 per year.
“What it has done is raised wages for all these folks. But housing and the cost of living has gone up as well,” says Redman.
February unemployment stats showed the rate of joblessness in Odessa was 3.2 per cent and 2.5 per cent in Midland. And in March, average weekly earnings hit record levels in both cities.
Jeff Sparks, chief operating officer of family-owned Discovery Oil in Midland told Reuters “You have people that move in, you train them and then someone else offers them a job: there is constant raiding going on.”
Sparks says his company has recently adopted more efficient and capital-intensive drilling techniques that have helped push drilling costs down steeply.
But even with the optimism generated by the West Texas oil boom, many remember that booms do not last.
Sondra Eoff, partner in an Odessa downtown construction project designed to keep the city vibrant for the long run, not just during the boom time said “when there’s an up, there’s a down.”