A New Texas Oil Boom Is Coming, Finally
Updated: Aug 23
That is, whenever the industry can sort out supply-chain issues and labor shortages.
Written by Russell Gold
In the two months since Russia invaded Ukraine and oil prices shot up to more than $100 a barrel, the perplexing question for the Texas energy industry has been: Why isn’t anyone drilling? The answer initially was that the oil business has become beholden to a new group of investors who have no interest in strapping in for a roller-coaster ride. They ponied up their money for a nice calm turn on the kiddie train. This dynamic still holds, but evidence is emerging that the recent fossil fuel boom may stick around for a while.
That could melt the frosty resistance to deploying more rigs—if only the exploration companies can find enough workers and parts to make that happen.
The most recent sign of the new interest in upping spending on production has come from Olivier Le Peuch. Never heard of him? Then you’re probably not in the industry. At the risk of dating myself, he’s the EF Hutton of the oil patch. (When he talks, people listen.) Le Peuch is the CEO of Schlumberger, the world’s largest oil-field service company. When anyone from Chevron to a one-rig family company wants to work on a well, they call Schlumberger, giving the Houston company a wide-angle view of energy trends.
Last week, Le Peuch, while announcing a surge in business and profits, said the Russian invasion had spurred interest by companies and countries in having a more secure and diverse supply of oil and gas. That means a lot of energy investment can be expected to open new producing areas and boost the output of existing areas. Overall, he said the industry is entering an “exceptional” period marked by “a cycle of higher magnitude and duration than previously anticipated.” In other words, there will be a boom—and it will be stronger and longer than expected. This message will likely be reinforced later this week when Exxon reports its first-quarter earnings, which it has hinted could feature record-breaking profits.
Even so, things are still lumbering along in the Permian Basin. As Texas Monthly predicted earlier this year, the big stock exchange–traded oil companies haven’t accelerated their drilling, but some privately held companies have. Indeed, the state’s oil regulator issued 1,176 permits to drill new wells in March, up from 798 in March 2021. Getting those wells drilled isn’t going to be easy. Oil companies face severe challenges, including finding qualified workers. The industry has been shedding workers over the past decade due to low prices and increased automation. Many Texans with the requisite skills found work that was more reliable and less taxing on their bodies. The CEO of Houston-based Halliburton, Jeff Miller, said the existing U.S. fracking fleet—meaning the pumping units and crews that arrive after a well has been drilled—is booked through the end of the year. Red-overalled frac crews aren’t the only resources that are hard to find. “Spare parts, engines, electronics, and many other inputs cost more and are sometimes not immediately available,” Miller told Wall Street analysts last week.
Firms also say they just don’t know what tomorrow will bring. “So much uncertainty makes it, for me at least, virtually impossible to predict anything beyond this afternoon,” an executive anonymously told the Dallas Federal Reserve’s energy survey last month. That uncertainty and the supply-chain constraints are preventing operators from fully revving their engines. That will keep energy supply lower than it would be otherwise—and prices higher than they would be otherwise.
Still, Bob McNally, president of Rapidan Energy Group and former energy adviser to President George W. Bush, told me, “There is no question in my mind we are entering a multiyear boom.” McNally said there has been a bust underway since 2014, but with rising demand and too little invested in energy, conditions now exist for that to swing to a boom. Last fall, he said, we entered the foothills of the boom, and Russia’s invasion of Ukraine sped up what was already underway. “Boom will follow bust like night follows day,” McNally said. “It is only a matter of when.”
What’s good news for roughnecks and investors in fossil fuels is bad news for motorists. This won’t come as a surprise to anyone with a pulse, as gasoline prices are near an inflation-adjusted eight-year high. And don’t expect them to fall back to 2021 levels anytime soon. What to do? One option is to buy an electric car, but you may already be too late for that. Demand for electric vehicles is high, while supply-chain problems have prevented automakers from ramping up production. Austin-based Tesla reported last week that it had three days’ supply of its vehicles on hand, down from eight days at this time a year ago. Every vehicle that rolls out of the new Gigafactory in Texas is already spoken for. Tesla CEO Elon Musk said that the wait list for some of the company’s vehicles extends into next year. Ford is facing a three-year backlog for its electric F-150, Volkswagen has a four-month wait for its new ID.4, and Subaru’s order book for its new Solterra filled up in three days, with many more drivers trying to get on a wait list.
The wallet-emptying shock of filling up our gas guzzlers will likely continue—that is, until the energy industry can (perhaps by offering higher wages or longer contracts) convince the roughnecks burned by the last bust to give the oil patch one more chance.