Texas drilling, oil field hiring accelerates in first quarter

Texas drillers pumped more crude and service companies expanded payrolls faster in the first quarter, the Dallas Fed said Wednesday, the latest sign the industry is emerging from a two-year downturn.

The acceleration in drilling and oil field hiring marks a vast improvement for the Texas oil industry. This time last year, U.S. oil prices dove to the lowest point in more than a dozen years, and the collapse cost the state more than 100,000 oil and gas jobs.

Now, with crude prices hovering near $50 a barrel, oil field services companies have hired new workers and raised prices for drilling tools as producers order more equipment and spend more money, according to a survey by the Federal Reserve Bank of Dallas.

"They're definitely gaining traction," said Michael Plante, a senior economist at the Dallas Fed, which in March surveyed more than 150 energy executives in its districts of Texas, northern Louisiana and southern New Mexico. "It's more than just short-term optimism."

More than half of the energy executives reported rising activity in the first three months of the year, with more than four in 10 oil producers pouring more cash into oil fields. About a third of the oil companies said they raised production levels, and half of them expected the market to improve over the next six months.

In fact, some executives warned the industry may have recovered too quickly, and that the surge in drilling in West Texas could eventually offset international oil production cuts that OPEC hopes will stabilize prices and drain the global glut.

"Too many rigs have gone back to work," one surveyed oil field service company executive said. "The market has not signaled that such a return to high activity levels is justified."

One oil company executive worried that the oil boom in the Permian Basin will dissuade Saudi Arabia and other OPEC producers from extending oil production cuts at an upcoming meeting in May. The cuts are set to end this summer, but the cartel is considering extending production cuts another six months if the commercial oil inventories do not decline enough.

"The key uncertainty for the end of 2017 and 2018 is whether OPEC and Russia will maintain their production cuts or not," one executive said.

In recent weeks, U.S. oil prices have slipped below $50 a barrel after reaching more than $54 in February. It's a sign some executives said should give the industry pause. Still, one said, the industry is overall "headed in the right direction."

About a third of oil field services companies hired more workers and raised prices. The Dallas Fed's index for measuring employment growth in the local oil field service industry rose to 21.6 points in the first quarter, up from 7.5 points in the previous three months.

Nearly 40 percent of services companies said they saw an increase in the use of their oil field service equipment, and nearly three in 10 reported an increase in prices.

Even as services prices rise, oil producers said they can profit from drilling new wells in the Permian Basin and Eagle Ford Shale in Texas with oil prices at less than $50 a barrel.

On average, break-even costs for drillers in major basins in Texas and Oklahoma have come down 6 percent over the past year. In the Midland Basin, part of the Permian Basin in West Texas, drilling costs have dropped to $46 a barrel.

Executives believe oil prices could rise to more than $53 a barrel by year's end, the survey showed.