EDITOR – OGFJ
Texas oil and gas industry: down, not out
THE OIL AND GAS INDUSTRY is big in
Texas. So, despite the promise of the Permian and the shine of the Eagle Ford, it
comes as no surprise that The Lone Star
State is feeling the blow of the two-years-and-counting industry downturn. For
those not following the happenings as
closely as folks who live and breathe (and
swelter in) Texas, I’ve rustled up some
statistics that may help paint the picture.
This May, Texas bankruptcy courts passed Delaware in
terms of cumulative debt administered, according to Haynes
and Boone LLC. The firm’s latest Oil Patch Bankruptcy Monitor, dated May 31, counted 41 E&P bankruptcies—
representing nearly $24.3 billion in cumulative secured and unsecured
debt—filed in Texas since 2015, putting the state in the
unenviable top spots for volume and debt by Haynes and
The largest of the Texas filings was that of LINN Energy.
The company filed voluntary petitions for restructuring
under Chapter 11 of the Bankruptcy Code in the United
States Bankruptcy Court for the Southern District of Texas
in May. In fact, Texas Alliance of Energy Producers, the na-
tion’s largest state association of independent oil and gas
producers, noted in its May newsletter that LINN’s $10 billion
debt made the company’s bankruptcy “the biggest among
energy companies so far in this downturn.”
Tough times for companies mean tough times for employ-
ees. Job losses across the state have been dramatic. According
to the Texas Petroleum Index (TPI), a service of the Texas
Alliance of Energy Producers, the number of jobs trimmed
from upstream oil and gas company payrolls in Texas sur-
passed 100,000 in May 2016, declining to 205,100 from a peak
of about 306,020 in December 2014. “The last time industry
employment was this low was in late 2010, as the last expan-
sion of upstream oil and gas activity in Texas was just begin-
ning to take off,” said Karr Ingham, the economist who created
the TPI, in a June 27 update.
And while it’s likely cold comfort, the job losses actually
pale in comparison to those of the late 1980s. A straight
comparison of the current downturn to the industry bust of
the 1980s is hard to formulate, but it’s estimated that job
losses in the industry reached somewhere near 240,000 in
Texas alone during that time, John Graves of Graves & Co.
told Bloomberg in a late fall 2015 interview.
Considering drilling activity in Texas has declined more
than 80%, Ingham said it’s a “minor miracle” that only about
32% of jobs have been cut since December 2014.
So about that drilling activity…the monthly average of
active drilling rigs in April 2016 declined to less than 200 for
the first time since June 1999. The rig count continued downward in May, despite higher crude oil prices. The Baker
Hughes count of active drilling rigs in Texas averaged 182,
51.5% fewer units than in May 2015 when an average of 375
rigs were working. According to Baker Hughes calculations,
the Texas rig count as of June 3 was 176, down almost 81%
from the weekly count in November 2014—the count just
before rigs began to drop.
The Railroad Commission of Texas (Commission) issued
a total of 606 original drilling permits in May 2016 compared
to 916 in May 2015. The May total included 488 permits to
drill new oil or gas wells, 13 to re-enter plugged well bores
and 105 for re-completions of existing well bores. The breakdown of well types for those permits issued May 2016 included
179 oil, 28 gas, 354 oil or gas, 17 injection, zero service and
28 other permits.
In May 2016, Commission staff processed 760 oil, 199 gas,
60 injection and 11 other completions compared to 1,299
oil, 201 gas, 72 injection and seven other completions in May
2015. Total well completions for 2016 year to date are 5,529
down from 9,832 recorded during the same period in 2015.
Now all that said, the price of WTI has inched steadily
upward, resting just above $46/bbl in late June.
“It appears increasingly likely that we have seen the bottom, and that is certainly cause for some celebration and
cautious optimism about where we are headed at this point,”
Ingham said in May, noting that just as it took time for these
indicators to trend downward following the fall of crude oil
prices, positive changes will likely take several months to
appear following the price uptick.
But if you’re looking for positivity — and who isn’t? — keep
one eye on The Lone Star State. Remember those 176 rigs I
mentioned? Those rigs represent roughly 43% of all active
rigs in the US. Many producers looking to put rigs back to
work are targeting the Permian. Exceeding all other districts
in Texas, the Midland district saw 221 original drilling permits
issued and 304 completions processed by the Commission
in May. Texas may be down, but it is certainly not out.