With oil now below $70 per barrel, oil industry workers in Texas should anticipate a decline in exploration and drilling in certain areas and hence a slowdown in employment.
Oil exploration and production accounts for about 10% of the Texas economy. At lower sustained oil prices, some operators will scale back their drilling programs in development areas across the state, which will in effect reduce spending in the oil sector, and have an impact on industries connected to the oil patch (i.e. steel and transportation).
Currently, the vast majority of Eagle Ford operators do not appear to be changing course next quarter, but last month, at least one Eagle Ford player, Clayton Williams, indicated it’s considering scaling back its drilling program in 2015 due to the “pullback” in oil prices.
The good news is there are many areas in the Eagle Ford Shale where drilling and exploration are profitable well below the current benchmark price (West Texas Intermediate or WTI) of ~$67.00 per barrel.
Analysts predict the Karnes Trough, one of the best areas of the play, would be profitable, even if oil prices fell into the $40s range. In certain other liquids-rich areas of the play, breakeven oil prices are between $50 – $60 per barrel.
But there is a large variance in the well qualities across the Eagle Ford, with breakeven prices in several places above the current price of WTI.
Why the Price of Oil is Falling
Since June of this year, oil prices have been falling for a variety of reasons. The shale oil boom, for instance, has increased the supply of oil worldwide, while demand has gone down in China, the world’s second largest oil consumer. But the main reason oil prices are dropping can be traced back to OPEC, which announced last week it would not cut its oil production to shore up oil prices.