The Texas oil and gas economy continues to show strength, according to the latest quarterly survey by the Federal Reserve Bank of Dallas, News Radio 1200 WOAI reports.
The Business Activity Index, which measures conditions among energy firms as well as expected future activity, jumped from 38.1 in the fourth quarter of 2017 to 40.7 in the first quarter of 2018. Any number over zero indicates positive growth.
“Activity in the oil and gas sector grew vigorously in the first quarter, with our activity index coming in at its highest level since the first quarter of 2017,” said Dallas Fed Senior Economist Michael D. Plante. “The expansion in activity is leading to increased employment and is also pushing up wages and other costs for firms."
Plante said the global price of crude oil, which appears to have settled in the low $60 range, is driving optimism and increased employment, but there is another factor as well.
He says fracking firms in the Eagle Ford and the Permian Basin have figured out, after OPEC crashed the price of oil in late 2014 in an effort to drive them out of business, how to produce profitably with oil prices at a far lower level.
He says in a series of special questions, respondents indicated that the breakeven prices needed to profitably drill a new well range from $47 to $55, well below the current price of oil.
In fact, 88% of Texas oil producers say their breakeven price is below, and in many cases well below, the current price of crude.
And the market appears to be producing something else that is in the interest of increased oil production--price consistency. On the average, Texas producers expect oil prices to be $63.07 per barrel when the ball falls to mark the start of 2019, which is only slightly different from the current average price of oil which is $62.72.
Plante says a result is continued strength in employment in the oil and gas sector. In fact, the employment index for oilfield firms today is 37.1, compared with 9.0 for the average S&P corporation.
And 53% of oil exectuvies say they plan to increase the number of employees in 2018, while only 4% expect decreases.