Last week the Federal Reserve Bank of Dallas issued a brief summary report on employment, production, and new drilling in the Permian Basin of West Texas. In general, the report was positive with a couple of exceptions.
On the employment front, non-farm payrolls are up about 1.3% year over year but have not fluctuated much since February when employment in the basin was around 158,000. The unemployment rate in the basin fell from 4.4% to 4.1% between April and May. Unemployment in the cities of Odessa and Midland is now below 5% but the labor force has shrunk by 5,500.
On a related note, the housing market in the region averaged 345 home sales per month over the past six months and new housing permits have risen by 18% since December and are 36% higher than last year’s May number. Rising rig counts and energy company optimism “could be tailwinds for the Permian Basin housing market,” according to the report.
June crude oil production rose by an estimated 70,000 barrels a day month over month to a total of 2.41 million barrels a day. Production is up about 21% year over year. The Permian Basin rig count rose by 11 month over month.
The average price for a barrel of West Texas Intermediate (WTI) crude oil fell from $48.48 in May to $45.18 in June. That’s 82 cents below the average price per barrel needed to make it economical for an oil company to drill a new well in the Permian Basin. The price needed to produce a barrel from an existing well in the Midland Basin of the Permian is $24.
And that leads to the total number of drilled but uncompleted (DUC) wells in the Permian Basin. The Dallas Fed reported 2,163 DUCs in the Permian Basin, more than one-third of the total number of DUCs in the United States have been drilled in the Permian Basin. The number of DUCs in the Permian rose by 78% last year compared to a drop of 8% in the other U.S. shale fields. The number of DUCs provides some insight on industry conditions and indicates the potential amount of supply that could be available to come online relatively quickly once the price of WTI rises to the breakeven level.