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Permian DUCs, Rig Count Rising While Regional Unemployment Rate Declines

The drilled but uncompleted (DUC) well count in the Permian Basin had risen to 2,163 at the end of May, about 78% higher than a year ago, as the most active area of the United States continues to draw more rigs and more people, according the Federal Reserve Bank of Dallas.
In a report issued last week specifically about the economic conditions in the Permian, economists reviewed data using Texas data for the Midland-Odessa metropolitan statistical area and the 55 counties in West Texas and southern New Mexico that make up the Permian Basin region. The insight follows up on the 2Q2017 Dallas Fed Energy Survey issued at the end of June.

“The number of DUCs has risen by about 78% in the last year in the Permian Basin, but has fallen 8% among other basins,” said economist. “However, the total number of DUCs has risen month/month for the last six months in other basins and for 11 months in a row for the Permian Basin.”

The number of DUCs provides some perspective on industry conditions and gives clues to the potential amount of supply that could be available to come online. Data indicates the rising rig count is once again having a positive impact across other regional sectors.

“May housing inventories for Midland and Odessa were about 2.7 and 4.8 months, respectively,” economists said. “Consistent with rising home sales, the level of inventory in each metropolitan statistical area has been dropping, although Odessa’s inventory remains well above pre-bust levels,” referring to the oil price bust of mid-2014.

“The rising rig count and optimism of energy companies seen in the second-quarter Dallas Fed Energy Survey could be tailwinds for the Permian Basin housing market.”
Employment in the region “has remained around 158,000 since February and has grown around 1.3% year/year.

“Since the energy recovery started, Permian employment has been rebounding gradually,” said economists. “A potential tailwind is the outlook of oilfield service firms and exploration and production (E&P) firms,” based on companies that responded to the survey.

“The company outlook index, though lower than the first quarter, was still positive at 20.3, and the labor market indexes pointed to rising employment,” economists said. “The unemployment rate in the Permian Basin ticked down from 4.4% in April to 4.1% in May. Both Odessa’s and Midland’s unemployment rates are now below 5%.”

The unemployment rate and employment each have rebounded since the same time last year, but the labor force has shrunk by around 5,500 people, as former oilfield employees went in search of new jobs.

Meanwhile, the Permian’s crude oil production was an estimated 2.41 million b/d in June, up about 70,000 b/d from May.

“Production levels have accelerated this year and have been growing at 2.2% on average since January,” economists said. “Levels are up about 21% year/year in June.”

More than 45% of Permian E&P firms surveyed said they had increased production, and only 27.4% said output decreased while 27.4% reported no change.

According to the 2Q2017 energy survey, respondents on average are forecasting a rise in the West Texas Intermediate crude oil price to $48.79/bbl, which is slightly lower than average forecasts in 1Q2017, where they were predicting $53.49. 

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