On June 29th the latest quarterly report released by the Federal Reserve Bank of Dallas addressed the capital spending, costs, production levels, employment and overall current business activities of energy companies from Louisiana, New Mexico and Texas.
From approximately 200 gas and oil companies surveyed, 42 percent stated that they expect their employment levels to remain consistent with those of 2015 while another 40 percent indicated they would be cutting jobs in 2016. Such a cut would result in the loss of about 35,000 jobs, but whether these predictions hold true depends strongly on the price of oil in the coming months.
In a price per barrel comparison, the Fed asked energy companies what price they would need to cover the cost of operating existing oil wells and what price they would need to profitably drill a new well. Of the 69 oil and gas firms that responded to the question regarding existing wells, Eagle Ford Shale and Permian Basin required only $29 per barrel to operate while other Texas firms needed as much as $37 a barrel to maintain current operations. Of the 63 companies who responded to the question regarding new wells, Eagle Ford and Permian Basin would need $53 and $51 per barrel, respectively, to profitably drill a new well while other companies in Texas would need $55 per barrel.
It should be understood that the Eagle Ford price of $29 a barrel represents the amount needed for the company to break even on existing wells. In a worst case scenario, should oil prices drop below $29 per barrel, the company would be operating at a loss which would negatively affect employment levels. In a best case scenario, should oil prices meet or exceed $53 per barrel, the company could profitably drill new wells resulting in an increase in employment levels.
Based on the data presented, employment levels on Eagle Ford Shale will probably decrease slightly or remain the same. Increased employment is unlikely in over the remainder of the year due to the sluggish market. Oil prices of $53 per barrel or more are needed to truly improve employment projections.