Falling World Oil Prices Affecting Eagle Ford Shale and Texas Employment and Economy
By: Jose G. Landa, Copyright 2015, Eagle Pass Business Journal, Inc.
As the price of oil per barrel and gas at the pump continues to decline, there are growing financial concerns for tens of thousands of oil and gas drilling employees, employers, suppliers, and communities in the Eagle Ford Shale in southwest Texas as well as throughout the state of Texas. The prospects of impending pay cuts or employment layoffs loom large in the minds of oil field workers as American oil and gas drilling costs cannot compete with the lower Middle East producing countries’ costs such as Saudi Arabia.
The precipitous decrease in the price of crude has American companies in the oil and gas exploration industry in the midst of preparing mass lay-offs through this year, say experts.
The lay-offs could be determined by which sections of the industry are less profitable.
Reports show that workers in the Eagle Ford Shale or patch areas are now being laid off and are also being given the choice to take a $2 to $3 pay cut to stay on the job.
Experts say that the employment or pay-cuts could mean hundreds of thousands of jobs may be lost during 2015 if the price of oil continues at a low of $55 per oil barrel or less and that the cuts could weigh heavier in areas where oil exploration is most unconventional such as in Texas, including the Eagle Ford Shale region, where the price of fracking is higher than in other shale plays.
Officials from the Texas Workforce Commission have stated that they will begin to see an effect within the Eagle Ford Shale in the coming months because of the decreased price of oil.
Ronnie Rivera, Director of the Texas Workforce Solutions for Middle Rio Grande, stated that nationally companies within the oil industry have already started personnel cuts of up to 20%, but that it is unclear as to the affect the fall will have in the Eagle Ford Shale that is comprised by 26 different counties within the region.
Rivera further stated that an accurate depiction of job cuts is unclear but that reports do show companies beginning to pinch their wallets with a reduction in salaries in areas of employment within the Eagle Ford Shale.
Rivera stated that within the month of January employees within the oil industry in the Eagle Ford region had received letters from their employers stating that a pay cut was necessary in order to keep the employees working.
Economists at The Federal Reserve Bank of Dallas, which covers the Eleventh Federal Reserve District including Texas, northern Louisiana and southern New Mexico, foresees that Texas, the nation’s largest oil-producing state, may not outpace the nation in job growth this year because of falling oil prices.
Federal Reserve economists are unwelcomingly expecting a decline of 2% to 2.5% in job growth in 2015 from 3.6% in 2014. This will translate to almost 140,000 fewer new jobs than created in 2014.
In November 2014, Texas had gained a record 441,200 jobs over 12 months.
Federal Reserve economists stated that since November 2014, Texas had begun seeing job losses in the oil and gas sector. The slowdown could wipe out even more as jobs are slashed in exploration, construction, refining and the tens of thousands of jobs that service the industry and its workers.
U.S. Steel Corp., which makes pipes and tubes for oilfield drilling, plans to lay off 142 people at its Houston, Texas plant and will temporarily bring its Ohio factory production to a crawl due to a decline in demand for its product, according to a letter U.S. Steel wrote to the state. The company is idling steel mills that specialize in Oil Country Tubular Goods in McKeesport, Pennsylvania; Lorain, Ohio; and Houston and Belleville, Texas. Its stock has fallen by about 20 percent over the past year.
Fitch Ratings Inc. in a January 13, 2015 report stated that the unwavering decline in oil prices being seen could affect economic and revenue trends for certain Texas cities, counties and school districts. The report further states that if oil prices do not take an upturn and if oil exploration slows down, some cities in the Eagle Ford Shale in South Texas and the Permian Basin in West Texas could see declines in taxable values, lower property taxes and possible budgetary pressures. The Barnett Shale region in North Texas won’t be affected as much, Fitch said in its report.
The rating agency also stated that as long as oil drilling slows, it expects economically sensitive revenue such as hotels and restaurants, retail, construction and other businesses to suffer. Overall, Texas and its larger cities that have well-diversified economies won’t see a major impact, the ratings agency said.
A J.P. Morgan economist stated that Texas could be headed into an oil-fueled regional recession much like in 1986, where a similar decline of just over 50% in crude oil prices caused a regional recession in Texas and the rest of the nation did not.
Steve Murray, Senior Director of Fitch’s Austin, Texas regional office, stated that Fitch feels comfortable that the industry will navigate through the storm much better than it did in the mid-80’s as Texas has diversified so much in the past three decades being less dependent on oil and due to its banking and real estate markets are healthier. Fitch also states that increased consumer spending stemming from lower gas prices at the pump will help in offsetting some of the ills of the decline.
Oil and gas production accounts for about 11 percent of Texas’ economic output but only secures less than 3% of the state’s total employment. The energy sector has seen the fastest annual job growth rate in the last few years, says Fitch.
The reduction of pay wages and layoffs in the Eagle Ford Shale and other fields are beginning to affect the workers with smaller paychecks but increased costs and debts incurred during the hey day of the oil boom the past three to five years.
“We’re worried. I left a decent paying job under a promise and now it’s in the middle of a potential collapse. I’m worried about my family our mortgage and what’s to come,” said an employee.
