In August 2014, a very precise and prolific study was released by Texas Tech University titled “The Economic Impact of the Permian Basin’s Oil and Gas Industry.” The study is an 80-page report that provides estimates of the 2013 economic impact of the Permian Basin’s oil and gas industry and examines these impacts at the county level as well as in the context of the overall Permian region. The Permian region includes parts of west Texas and eastern New Mexico. From industry taxation to drilling activity to history of the oil and gas industry in the Permian Basin, this study dives into extensive detail and examines every element that goes into making the Permian Basin the leading producer of oil in the nation.
The study was conducted by Bradley Ewing and Marshall Watson, among many other contributors, and was prepared for the Permian Basin Petroleum Association based in Midland, Texas. Bradley Ewing is a Professor of Energy Economics at Rawls College of Business at Texas Tech University. His partner, Marshall Watson, is the Department Chair of Petroleum Engineering at Texas Tech University. With both of their respective expertise, they, along with the contributing efforts of their colleagues, were able to conduct this one-of-a-kind study.
“There aren’t any studies out there that put together engineering and economics,” Ewing said. “We were able to combine the two.”
To help bring this study to the public, Ewing and Watson teamed up with Houston-based company Consumer Energy Alliance (CEA), which has a consumer audience of over 400,000 members nationwide. CEA President David Holt says he’s excited to be able to showcase this study as a way to shine a numerical and factual light on the Permian’s involvement in the current energy revolution in the United States.
“Initially we were not involved in this study, but because it focuses so much on the broader implications of the economic ripple effect that the Permian has throughout not only the Texas economy, but the national economy, it was a study that we wanted to help market and help tout,” Holt said.
For those of you who are unfamiliar, the CEA is a non-profit trade association that was formed in 2006, with the principal purpose of broadening the energy discussion to everyone in the economy that relies on energy to power their cars, turn on their lights, or to make energy products that the rest of the economy relies on.
Holt, an advocate for the oil and gas industry, wasn’t necessarily surprised the findings of the study, but was pleased with the facts it presented.
“Any time you see these numbers, it is absolutely staggering,” Holt said. “If you take just the Texas side of the Permian away and take it out of the U.S. economy the past five years, think about where we would have been as we struggled during the great recession in 2008. If you take that out we are in the great depression.”
We will be diving into some of those staggering numbers in a moment, but it needs to be mentioned when reading the results of this study, keep in mind that these numbers are from 2013. As we know, times are different right now in the oil and gas industry than in 2013, in fact, Baker Hughes just announced last Friday that rig totals have plummeted to their lowest totals since December 201., with the Permian Basin dropping 65 rigs from December 2014 to January 2015. However, despite the dramatic drop in rig count in recent months, the Permian Basin continues to be the top oil producer in the United States, and as this study shows, a top economic contributor as well.
According to the study, the Permian Basin has the greatest rig count of any basin/region in the world with 27 percent in the United States and 56 percent in Texas. In 2013, the United States led the world in rig count and distribution with 1757 rigs, 387 of which drilled vertically and 1,370 were drilled horizontally. Below are maps showing rig location/drilling type within the Permian and rig count totals by drilling type from 2012 to 2013.
As you can see, the rig count graph shows a trend in the number of vertical rigs lost, and the number of horizontal rigs gained. As a result of advancements in hydraulic fracturing and horizontal drilling technology, the Permian saw an increasing percentage of wells being drilled horizontally. From 2012 to 2013, the number of horizontal rotary rigs increased by 84 and the number of rotary rigs drilling vertically decreased by 90, as shown in the graph.
The graphic below shows the annual average rig count from 1987 to 2013 for Texas, South East New Mexico, and Texas’ portion of the Permian Basin.
As shown below, over 182,000 wells are currently reported active in the Permian Basin, with approximately 130,000 oil wells (71%) and over 26,000 (15%) gas wells and the remaining 14 percent for injection purposes. Of the 156,000 active producing oil and gas wells in the Permian Basin, over 34,000 (22%) are directional and horizontal wells and the remaining are vertical wells. To clarify, DRL refers to “drilled,” while P&A refers to “plugged and abandoned” and TA refers to “temporarily abandoned.”
Below is a chart showing the number of wells drilled in the Permian Basin versus other basins in Texas and New Mexico from inception through December 2013.
The Permian Basin has the highest number of wells drilled, with over 392,000 wells, or 37 percent. Next is the Texas Coast Basin, which contains the Eagle Ford Play, with 257,938 wells, or 24 percent. The Texas Gulf Coast and Ft. Worth Basins, the latter of which contains the Barnett Shale Play, have the highest daily average production of 8.5 Bcf and 6.3 Bcf respectively, followed by the Permian with over 5.1 Bcf/d.
Professor Ewing discussed what makes this particular study unique. Not only does it focus on the engineering aspect of the Permian, but it also focuses on the economic impact the oil and gas industry is having on the entire region. Pictured below is an example of how the oil and gas industry is impacting the Permian Basin labor base, along with the economic value and output it is producing as a result.
As a direct effect of the oil and gas industry in the Permian in 2013, there were nearly a quarter of a million oil and gas-related jobs that brought in a total value of nearly $50 billion and outputted just over $95 billion. The total effect the oil and gas industry had on the Permian in 2013 resulted in almost 550,000 jobs which added a total value of over $70 billion as well as nearly $140 billion in total output. Of the 546,216 employment opportunities within the Permian Basin, 444,753 of those are Texas-based, with the remaining 94,771 being New Mexico-based.
Below is a chart breaking down employment numbers by sector. As you’ll see, there are many different facets of business that benefit greatly from the presence of the oil and gas industry across the Permian Basin including food services, drinking establishments, wholesale trade and maintenance, just to name a few.
Among counties within the Permian Basin, the study shows that the counties of Midland and Ector alone accounted for over 218,000 jobs alone, which brought in a combined total labor income of over $15.5 billion in 2013. Among New Mexico counties within the Permian Basin, Lea and Eddy counties accounted for the majority of the economic forces. Lea and Eddy counties accounted for just over 80,000 jobs, and added a combined economic value of over $9 billion.