Perhaps it’s not evident to anyone who is not an oil-worker living in America’s biggest shale towns, but signs of the shale slowdown predicted by many analysts, and the EIA itself, are already surfacing in the form of vacant hotels, a dip in home prices, a noticeable reduction in overtime hours for oil workers, and a change in standards for hiring.
Texas’ Permian basin lost 400 jobs in the first 10 months of this year, according to the Dallas Morning News, and fracking contractor Superior Energy Services Inc. alone announced in late November that it had cut 112 jobs from its Permian Pumpco unit.
This is in stark contrast to the first 10 months of 2018, when the Permian added 16,700 jobs.
According to the Dallas Federal Reserve’s “Permian Basin Economic Indicators” from November 27 this year, oil production reached a new high in September, though the rig count slipped and drilling has dropped to its lowest level in nearly two years.
Not only are frack crews for well completions in the Permian down more than 20% this year, according to the Dallas Morning News, citing Primary Vision Inc., but oilfield services companies are firing people–from National Oilwell Varco to Halliburton and RPC.
The Greater Houston Partnership said in a December report that Houston is facing a situation that is “eerily similar to what it faced after the 1980s bust — an oversaturated real estate market, a bleak outlook for oil and gas, and the need for innovation to drive the economy forward”.
To that end, it’s putting its hope in other industries–not oil and gas–as it forecasts the disappearance of 4,000 oil jobs by the end of 2020.
Why is Houston important when it isn’t even in the shale patch itself? Because this is the financial and corporate hub for many of those shale operations, and the job cutbacks are expected to hit investment banks and trucking firms in Houston.
Speaking to Bloomberg in late November, a Texas shale CEO and veteran fracker described the industry as “in shambles”, and questioned predictions of strong U.S. production growth in 2020. It doesn’t seem to reflect the reality that producers have been cut off from funding, share prices are dismal, and public offerings are being ignored entirely.
The EIA forecasted a production increase of 1 million barrels per day in 2020. But in mid-December, the agency said that production in the Permian, for instance, would only increase by 48,000 bpd in January 2020–the smallest increase since July this year. Bakken will see a negligible increase, and Eagle Ford will see a decrease.
And if we move to the Marcellus and Utica shales, which span Pennsylvania, West Virginia and Ohio, we see giant Chevron pulling up stakes entirely, putting its 890,000 acres up for sale after these operations accounted for more than 50% of a massive impairment charge of around $11 billion for the supermajor in Q4 this year.
The reality, it seems, is very different on the ground.
The first sign of a slowdown outside of the actual shale numbers is this: Home prices have dipped, and home sales have flattened. In October, median home prices fell 2.6% from August, while monthly home sales fell 3.6% from September.
The Wall Street Journal tells a similar slowdown story, but in the form of empty hotels.
Citing hospitality benchmarking firm STR Inc., the WSJ notes that the hotel business was booming until this year, when occupancy in the first 10 months of the year fell 14%.
In October, news started emerging from West Texas about suddenly cheap hotel rooms and unusual vacancies.
It seemed rather sudden because just in Q2, rooms that had been $800 a night were down to $250 a night.
To many, that’s one of the biggest signs of the times, even if it doesn’t exactly mean that hotels are going to be closing down. They just aren’t going to be basking in the overpriced room boom next year, by most accounts.
The slowdown, however, isn’t directly related to low oil prices. It’s the result of an adaptation in production company strategy.
Shale producers are under immense pressure to cater to shareholders and give back after all those years of sucking up funding in the shale boom frenzy. So now, producers are slowing both growth and spending in order to reward shareholders. That’s starting to make itself felt in everything from hotels to overtime for workers.
It’s no longer a free-for-all of spending, and the new normal of cautionary spending isn’t going to depress any of these shale economies, but it will likely bring them back down to earth.