Signs of a slowdown permeate the Permian basin, the 55 million acres in West Texas and New Mexico whose abundant oil and widespread fracking fueled America’s quest for energy independence. Dragged into the downdraft of this year’s 19% drop in drilling are orders for everything from giant earth movers that build well-site roads to chemicals used to kill bacteria during hydraulic fracturing. Rig counts are down, hotel proceeds are declining, home sales are slowing and fewer jobs are available than just last year. “If you can’t wring out any costs savings then you’ve got to buy less stuff if you want to get your costs down, and that’s the phase we’re entering into,” said Jesse Thompson, senior business economist at the Houston branch of the Federal Reserve Bank of Dallas. “You’ve seen this work its way through on the manufacturing side as quickly if not more quickly than we saw in the rig count on the oilfield services side.” Through August, Permian employment has grown at an annualized rate of 0.7%, far less than the 11.4% growth of the same period last year, the Dallas Fed said Wednesday in its latest monthly report. Unemployment in August, the latest period available, is at 2.3%, inching up from the region’s low of 2% in May. Caterpillar Inc., which makes a wide range of equipment for the industry, such as generators and pumps used by drillers in the field, blamed the Permian for its lower second-quarter sales in oil and gas equipment. The company warned investors in July that annual profit will probably come in at the lower end of its forecasted range, in part because it has cut expectations for West Texas revenue. Balchem Corp., which sells chemicals used in hydraulic fracturing, has been counting on a return to pressure-pumping in the Permian during the second half of this year. “But we’ve not seen any indication of that yet,” Martin Bengtsson, chief financial officer for the New Hampton, New York-based company, said on an August conference call with analysts and investors. “We remain cautious about this historically cyclical market and it’s hard to accurately forecast the ups and downs.”
Lights warning of reduced oil production have been flashing.
Last month, oil explorers slashed drilling work by the most in a single week since January 2016, when crude prices were headed to their lowest in 12 years. The number of Permian crews, who come in after the drilling teams to get wells ready for production, has tumbled every week since the end of July and now sits at a 30-month low. With fewer workers drilling and fracking, hotels are taking a hit. Revenue per available room declined 32%, year over year, in August, and year to date is down 21%, according to STR Inc., a research and consultant firm that tracks tourism data. By comparison, the figure for the U.S. as a whole, year to date, is a rise of 1.1%. Double-digit changes in either direction are “very, very rare,” said Jan Freitag, an STR senior vice president. Talking about the big moves in Odessa and Midland, the Permian’s biggest cities, he added: “Normally, you get that when something like a hurricane hits.” Sales of existing homes in the Permian climbed 5.7% in August compared with the same period last year, according to the Dallas Fed’s Permian Basin Economic Indicators report. But even that gain was below the increases in 2017 and 2018, the bank said. “We don’t see any increase in the number of workers seeking work at this point,” Marks said. Nick Bit: Its OVER US oil production has peeked and will plunge for a decade or more. They have gotten all they can out of these wells. The horse is limp shot him in the head and move on!