Many believe that once oil prices rise, the U.S. will be in a prime position because of the thousands of wells that have been drilled, but not yet completed. This ‘fracklog’ holds a lot of potential production with likely more than 1.5 billion barrels of oil just being held back, ready to go. In the Eagle Ford it is estimated that there are 1400 wells that have yet to be completed.
Despite the reduced rigs, production in the Eagle Ford hit record amounts for most of the year. In January, Texas led the worldby producing 18.81 billion cubic feet of natural gas per day, more than more than any member of OPEC. Karnes, Dimmet and McMullen Counties topped U.S. production with Karnes accounting for 30% of all Eagle Ford activity. Even though production began to sow in April, the region still produces an average of 1.5 million barrels per day, a year-to-year increase of nearly 40,000 incremental barrels per day (3%) from November 2014.
Companies Struggle to Survive
Oil producers have used every tactic in the book to try and squeeze out more oil for less this year. They have become more efficient, increased technologies and reduced costs, including one CEO who slashed his own salary.
It took a little time for the reality of the low oil prices to finally trickle down, but after months of plummeting crude, the boom became a bust for many when companies started handing out pink slips. By October, the industry lost an estimated 200,000 jobs with around 60,000 in Texas alone.
For some companies, decreasing budgets and laying off workers wasn’t enough to stay afloat and over 18 Eagle Ford producers filed for chapter 11 in 2015 including Energy & Exploration Partners, Sabine, American Eagle Energy, Quicksilver Resources, BPZ Resources, WBH Energy and Walter Energy. By mid December Haynes and Boone, LLP released a report that showed there were 36 bankruptcies nationwide totaling about $13 billion in debt.
New Rules & Regulations
Another challenge facing the Eagle Ford in 2015 was the increased reach of the government to regulate the oil and gas industry.
After Denton officials outlawed fracking, Texas Governor Greg Abbott signed legislation in May that allows state authority to override local decisions about oil and gas regulations. State officials were also vocal in their opposition of other federal guidelines for fracking and methane emissions, calling them a blatant attack on the industry that will kill Texas jobs. In July, Texas’ Attorney General Ken Paxton even filed a lawsuit, accusing the Obama Administration of illegally attempting to expand the jurisdiction and regulatory power of the EPA in such a way as to threatens private property ownership.
Texans fought hard to end the 40 yr old oil export ban. A 2015 study from Rice University revealed that the ban had the greatest impact on producers in the Eagle Ford Shale since its sweet crude should attract a higher price on the international market. The ban was recently repealed, opening markets for Eagle Ford producers. Also last month, the U.S. Department of Commerce opened the door for a limited amount of oil to be exported to Mexico through an exchange program that will allow the U.S. to ‘swap’ its light sweet crude for Mexican heavy sour crude.
Tighter regulations were also suggested over concerns about the connection between fracking and earthquakes. A study led by researchers at SMU concluded that earthquakes in the north Texas communities of Azle and Reno were likely triggered by the wastewater disposal methods used by fracking companies and asked the Railroad Commission to consider additional regulatory changes to ensure that oil and gas continues to be developed safely yet with minimal economic impact in Texas.
Effects on Texas Economy
As the value of the oil and gas being pumped from the ground dwindled, the shrinking tax base for local governments have affected local and state economies. There is now less money to run schools, police departments, road crews and other important infrastructure. Research director, Thomas Tunstall says that communities that avoided immediately spending their newfound oil and gas wealth are doing better than those who did not, and that those that diversified are doing best of all.
The latest numbers produced monthly by Comerica Bank show that the Texas Economic Activity Index continues to decline. The Index measures such variables as non-farm payrolls, exports, hotel occupancy rates, unemployment insurance claims, housing starts, sales tax revenues, home prices, and the state rig count.
In the following video, Mine K. Yücel, Dallas Fed senior vice president and director of research, provides updates on the Texas economy.
