Record rig counts signal robust Permian Basin economy

The rig counts are hitting record highs in the Permian Basin as the oil and gas boom continues and the regional economic index continues to steamroll forward with expansion energy industry the driving force.

“We have 400 drilling rigs running around Odessa and Midland that are drilling two wells per month at an average cost of $2 million per well,” said Kirk Edwards, president of MacLondon Royalties and past president of the Permian Basin Petroleum Association. “That is $1.6 billion of investment being made around Odessa and Midland every month. The economy driven by that investment is just phenomenal and that is what we are experiencing right now.”

As of Wednesday oil prices had reached $100.50 a barrel and Edwards predicts oil prices will remain in the $100 range throughout the next year, but it doesn’t even need to stay that high.

“As long as we can keep prices above $80 to $85 (a barrel) we will continue to see this type of rig count for the foreseeable future,” Edwards said.

The oil and gas boom is trickling down and bringing improvements in all other sectors of the regional economy. Retail spending continues to rise and employment continues to improve.

Amarillo Economist Karr Ingham reports that the economic index is about to hit the peak level reached in December of 2008, before the economic downturn and subsequent drop in oil demand hit the Permian Basin.

The Midland-Odessa Regional Economic Index for October reached 168.4, just 1.4 points away from the peak of 169.8 reached in December of 2008. Ingham reported the index could reach or surpass that level this month.

Ingham attributes the healthy economy to the extraordinary expansion in the oil and gas activity with the rig count up hitting 400 for the region, which is a whopping 60 percent higher than the rig count in August of 2008, when the monthly average topped out at 241 rigs. Likewise the number of drilling permits increased by 30 percent from 2008.

Industry analysts agree: this is a good time to be in the oil and gas business in the Odessa-Midland metro areas.

Ingham also says the expansion in oil and gas is “technology driven.”

“These impressive technological advancements are being financed by the modern price tier, which is to say this would not have occurred with crude oil prices in the $20 to $30 range,” Ingham reported.

Advancements in hydraulic fracturing and horizontal drilling have “unlocked more reservoirs to produce more oil than we ever thought economically feasible,” Edwards explained.

Retail sales were up 26 percent over last year, with $3,252,637,000 in October up from $2,578,741,000 last year. Auto sales are up 39 percent over last year from $547,682,000 to $761,602,000 in October.

“General real spending in 2011 has easily surpassed its 2008 pre-recession peak,” Ingham said. “While the gap continues to narrow rapidly, auto spending remains down by some five percent compared to the January to October 2008 total, reflecting the extraordinary recession induced decline in auto spending in Midland-Odessa and elsewhere.”

New home permits were up 75 percent over last year with 63 permits issued in October and 36 issued at the same time last year. Hotel/Motel tax receipts were up more than 55 percent in October with $4.6 million tallied over last year’s $3.1 million. But a housing shortage still remains.

“Over 25 percent of the people working in Odessa and Midland don’t live here,” Edwards said. “The hotels are full – there is no place for them to live right now.”

Employment is up 3.3 percent over last year, Ingham reports. But combined employment in Odessa and Midland is down about 2,000 jobs compared to October 2008. But job growth is healthy. As of October 31, there were 132,620 persons employed in the Odessa-Midland area, which is up 3.9 percent over last where when 127,680 persons were employed. The unemployment rate for the region was 5.1 percent, down 15 percent over last year’s 6 percent.

“The Wolfberry area and the areas over in Pecos have created an even bigger influx of people and money coming here that we have never seen before,” Edwards said. “It is wonderful for our economy.”

@OAciti