Oil industry sees brighter days on the horizon

The oil and gas business has emerged from its cloud of doom into something that can't be called optimistic but is inching closer to it.

Business activity is on the upswing. Companies are spending more and plan to increase budgets again in 2017, according to a survey released Wednesday by the Federal Reserve Bank of Dallas.

Economist Michael Plante with the Dallas Fed said companies are expressing cautious optimism about the Permian Basin in West Texas and New Mexico, the hottest U.S. oil field, and think that oil prices will rise in mid-2017.

"That's a little bit different than what we were hearing before, which was pessimism everywhere," Plante said.

It remains a tough world for energy workers, though, according to the quarterly energy survey.

More oil and gas companies are reporting layoffs than new hires, though most are frozen in place with the workforce they still have. Sixty-seven percent of the companies surveyed reported no change in their number of employees, a sign the bleeding has slowed.

"There are still firms who are laying off workers. Because of that, the hours, wages and benefits are still coming down in some of the firms," Plante said. "I think the odds are better that if you're still working now, you may be working in the next quarter."

In a separate report released last week, the Dallas Fed said that the Texas oil industry saw a 1.2 percent increase in jobs compared with the same month last year. It was the first month of net job gains in oil and gas since December 2014.

Amarillo-based energy economist Karr Ingham said the worst shocks to the Texas economy by the oil bust have been delivered and absorbed.

"The question at the beginning of the year was, how deep was this going to go? Are we actually going to see a recession in Texas because of oil and gas?" Ingham asked. "We're probably going to avoid that. If there is a direction, it's certainly a more positive direction."

Oil reached a high of $107 per barrel in June 2014 but fell as low as $26 per barrel in January and February, considered by the industry as the low point of the bust. Oil closed at $47.05 Wednesday.

Nearly all respondents to the Fed survey said oil needs to be at or above $50 per barrel for a significant increase in drilling activity. More than 90 percent think a price of $55 per barrel or more is needed.

Still, Thomas Tunstall, a research director at the University of Texas at San Antonio, said there's a sense in the industry that the worst oil prices are in the past.

"They tend to be an optimistic bunch, for one thing," Tunstall said.

The number of drilling rigs working in the Eagle Ford Shale in South Texas has stabilized, while the rig count in the Permian Basin in West Texas and eastern New Mexico is on the rise as land deals and investments zero in on that field. Tunstall expects operators to continue to get better at drilling horizontal shale wells in the Permian, which for decades has been a workhorse of conventional vertical oil production.

"They've got this whole new paradigm," Tunstall said. "It's given decades of life to the Permian."

Tunstall, though, said he's not convinced that the supply-demand problems have finished playing out in the world market.

Any slowdown in the Chinese economy could send oil prices lower, he said. The Organization of Petroleum Exporting Countries agreed Wednesday to cut oil production for the first time in years - a tool it has used in the past to prop up prices - but the cartel hasn't worked out the details of which countries would trim production and by how much.

"I just don't have a lot of confidence in OPEC's ability to hold the line," Tunstall said.

Ingham agreed. "I'll believe it when I see it," he said.

The Dallas Fed surveyed 154 energy firms between Sept. 14 and 22. Its next survey, which considers the health of the energy business in Texas, southern New Mexico and northern Louisiana, will be released Dec. 29.