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What is the Economic Impact of Oil, Gas in Permian Basin?

Texas Tech commissioned for report revealing an industry generating billions of dollars.

Written by George Watson

Oilfield Workers

People are leaving careers they’ve trained for, in favor of the high-paying oil field jobs.

By now, everyone’s heard the stories, or knows someone who is involved.

Hotel rooms in the Midland-Odessa area going for $400, or more, per night. Trailer parks, even in neighboring towns like Snyder, Andrews and Seminole with no vacancies. People leaving careers they’ve trained or earned degrees for, or both, for the high-paying oil field jobs. Fast-food workers earning close to $20 per hour.

Those are just some of the examples of how the recent boom in the oil and gas business has impacted economically not only the Permian Basin but all of West Texas. But the impact goes well beyond that.

Bradley Ewing, a professor of energy economics in the Texas Tech University Rawls College of Business, recently co-authored a report, “Economic Impact of the Permian Basin’s Oil and Gas Industry” which shows the region is now one of the biggest oil and gas producers in the world with an economic impact felt across the country.

The Permian Basin Petroleum Association commissioned the report.

View the full report here.

“We’re delighted that Professor Ewing, with his exceptional professional background in this field, has been able to provide this important document which we hope will serve the Permian Basin well,” said Robert V. Duncan, vice president for research at Texas Tech. “We look forward to being of service to society in this regard in the future.”

Infographic

Click to enlarge.

For the report, the Permian Basin was defined as the area stretching from Hale County north of Lubbock to the Rio Grande Valley and into parts of southeastern New Mexico. It includes the Delaware and Midland basins as well as several known resource plays such as Wolfberry, Spraberry, Bone Springs, San Andres, Clearfork, Cline Shale and Wolfcamp.

Ewing and his team found that the Permian Basin has the greatest rig count of any basin or region in the world and represents 27 percent of the total rig count in the United States and 56 percent of the total rig count in Texas.

According to the report, which estimates the economic impact for 2013, the Permian Basin’s oil and gas industry creates and sustains more than 546,000 jobs, with an economic output of $137.8 billion, and creates more than $71.1 billion to the gross state products of both Texas and New Mexico.

“The industry’s activities generate and sustain jobs, income, output and provide substantially to the gross state products of both Texas and New Mexico,” the report stated. “In addition, through various measures of taxation, the industry provides many localized benefits to the citizens of both Texas and New Mexico.”

In Texas alone, the Permian Basin is estimated to produce and sustain more than 444,000 jobs with $113.6 billion in economic output, and contribute more than $60.2 billion in gross state product for the state. For New Mexico, the Permian Basin is estimated to produce and sustain more than 94,000 jobs with $22.7 billion in economic output and more than $10.2 billion contributed to the gross state product.

Infographic

Click to enlarge.

Much of the growth of the rig count can be attributed to wells that are being drilled horizontally, which includes the increasingly popular multi-state hydraulic fracturing. According to the report, since Dec. 27, 2013, the number of horizontal, oil-directed rigs in the Permian Basin rose by 63 percent, which accounts for half of the total increase in those types of rigs in the United States.

The economic impact, however, is not felt just in drilling and exploration, but also in all the other industries that provide support.

“Ultimately, economic impacts derive from the exploration, drilling and production of oil and gas, which require a multitude of support activities for oil and gas operations,” the report said. “These core activities, in turn, lead to a number of non-core but very critical midstream supply chain activities, such as pipeline, transportation, refining and equipment manufacturing.”

The “secondary effects” of oil and gas drilling and exploration impact not only suppliers to the industry but also wholesale, retail, real estate and housing and financial services.

“Having studied the industry for a number of years, we were not surprised at the magnitude of the impacts from our researchers’ point of view,” Ewing said. “However, what stands out to us is the greater importance the oil and gas industry plays in the overall stability of the Permian Basin’s economy.”

Because of the way the industry functions in the area, Ewing and his team concluded the region’s economy is becoming more stable and the growth sustainable.

Pump Jack

The economic impact is felt in all industries that provide support, from drilling to housing and retail.

“The more recent performance of the industry is linked to greater economic stability,” Ewing said. “Moreover, the research indicates the economics of the industry and region are sustainable. However, that is dependent on infrastructure and capital formation keeping pace.”

This report marks the second one this summer Ewing has helped produce for the petroleum industry. In July, he was commissioned for a report on the economic impact the Texas oil and gas pipeline industry has on the state.

“This research solidifies Texas Tech as the leader in the area of energy economics and petroleum engineering research,” Ewing said.

In addition to Ewing, others who helped research and write the report included Marshall C. Watson, department chair for Texas Tech’s Bob. L. Herd Department of Petroleum Engineering, Terry McInturff, professor and chair of the Rawls College of Business Area of Energy, Economics and Law, Russell McInturff, a professor in the Area of Energy, economic and law, as well as petroleum engineering doctoral students Tariq Ali, Roland O. Ezewu and Ibegbuna Ezisi.

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10 Responses to “What is the Economic Impact of Oil, Gas in Permian Basin?”

  1. Paul Purcell Says:

    What happens to the area when the oil wells run dry?.. Does the town turn into a ghost town?.. Is there true gain when waitresses make 20 bucks/an hour but everything else has increased in price either at the same pace or at a greater pace?.. What is going to be the cost of importing drinking water to the area when you contaminate the ground water with the fracking and other unconventional and conventional drilling practices?.. What costs will be externalized to the health care industries of the area and other area’s.. The pollution generated in this corner of the world will migrate to others causing damage there.. The gains of the economic growth of the area are going to be eclipsed by the costs of the businesses leaving when the wells run dry..
    Investment in clean renewable energy is true gain in the economy and infrastructure.. Wind, wave, solar and biofuels.. The wind will always blow.. The waves will always be there.. The sun will always shine and crops can be grown indefinitely on a parcel of land provided sustainable agricultural practices are employed..

  2. What Is The Economic Impact Of Oil, Gas In Permian Basin? | Real Estate & Lending Insider Says:

    […]   By George Watson […]

  3. Luke Says:

    Way to be a troll Paul.

    Wind energy is intermittent which means on those hot west Texas days when it is 102 with no wind and everyone is cranking their AC will still be using oil and natural gas generators which back the wind power up. There will always be a need for Oil as it is in everything around us and that won’t be changing anytime soon.

  4. Gary B Says:

    The only limitless power source is the sun. If the oil industry is as smart as I think they are they’ll solve the technology behind storing solar energy to use it 24/7/365. Watch “Nobility” by Turk Pipkin for a truly mind boggling interview with a nobel laureate from Houston about our energy challenge.
    TTU ’74

  5. Gary B Says:

    Maybe the dept of Petroleum engineering should consider a name change to Dept. of ENERGY ENGINEERING to expand the mindset of the bright, capable minds residing there.

  6. Robert Says:

    Paul, fracking does not contaminate drinking water.

  7. T.W. Says:

    Right there with you Paul!!!
    We can already store energy from wind and solar sources. And we can very easily build roads that are made out of solar panels strong enough to be driven on. Now all we need to do, is find the rare earth metals that make this task economically feasible enough to be scaled across our vast need for energy, sure hope you’re ready to pay $1+/kwh. In the meantime, even if you have misinformed reasons to condemn the energy industry, you’re going need their power to retweet whatever celeb’s opinion is popular that day.

  8. Skip Goulet ('71). Says:

    I live in Midland, and it’s been a madhouse since the boom hit. I live south of I20 off FM1788, and the oil field traffic is terrible. Few days go by that you don’t hear about a bad wreck somewhere close by: on 1788 or on I20 or somewhere else in the county. I live right across from a big oil lease and the big water tankers literally fly down my road. I’m afraid that some day someone will come off one of the side roads and get hit by one of those tankers. The speed limit is 15 and they totally ignore it! Just east of me is a small trailer park that’s been there only a few months comprised of about 10 camper trailers; and just to the east before getting back to 1788 someone has put in a trailer park with the big “bunkhouse” type trailers. These small trailer parks are all over Midland and Odessa. The economy is soaring, but so are prices. My telephone and electric bills have gone up, which is ridiculous. I live in a small trailer and use very little in the way of utilities, but my phone bill was up by $22 this month as was the electric bill.

  9. Mike Says:

    Meeting the world energy demand is grossly misunderstood by the global population, Wiki “World Energy Consumption” and see for yourself. A fantastic documentary about the incredible energy needs, growth and methods of meeting demand can be accessed at http://www.switchenergyproject.com/

    83% of global energy demand is achieved by hydrocarbons and coal. Wind, water & solar account for less than 5%. It is a matter of physics. Wind, water & solar simply cannot deliver on a scale of energy need of 10 Quadrillion British Thermal Units per year. That’s 10 with 15 more zeros.

    Global energy demand is rising as nations industrialize. The 2 largest populations on the planet are rapidly bringing their populations into the modern industrial era and both utilize the most abundant & cost effect means to supply energy. Fossil Fuels.

    Wood from trees once were the primary heating and cooking source. Petroleum saved the trees.
    Whales were once harvested for blubber that was rendered to lighting oil. Petroleum saved the whales.
    Mass production of food via tractors and heavy machinery serve the global food demand. Petroleum feeds people.
    Crisis response teams address crisis needs on a global level. Petroleum makes that possible.
    Every machine on the globe requires lubrication which is derived from crude oil. There are more than 1800 lube varieties.
    Plastics & synthetic fibers (Nylon etc) are derived from petroleum. We enjoy durable fabrics, carpet, foam cushioning and artificial turf thanks to petroleum.
    Insulation for wiring, plastic for your computer components, paint, fertilizer, make up, and more than 6000 other materials are derived from petroleum.

    Thank you Permian Basin for providing this vital resource to the people that take it for granted! And thanks to the work force that make it possible!

  10. Byron Garrett Says:

    Think of the jobs being produced in west Texas it can bring in so much more stability for the community. But people need to realize the workers are here to help your community, and not be charged an arm and a leg for housing.

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