Oil and gas extraction productivity doubled in 5 years
Oil and gas extraction firms in Oklahoma and across the nation continue to push the envelope of productivity, recently published research shows.
A report in the Oklahoma Economist written by Chad Wilkerson, vice president and economist at the Oklahoma City branch of the Federal Reserve Bank of Kansas City, shows oil and gas producer employees’ output per hour more than doubled from 2012 to 2017, increasing by 108 percent. The figures are based on numbers of employees, the amount of investment and monthly production of barrels of oil equivalent.
In October 2014, when the nation had 1,924 rigs operating and 200,700 employees working in the oil and gas extraction industry, the U.S. Energy Information Administration reported the nation produced about 9.1 million barrels of oil per day. That production peaked at 9.6 million barrels per day the following April.
Between then and March 2017, the number of working rigs dropped to 789 and the employee count fell to a low of 144,700. Production bottomed out in September of 2016, when the nation produced 8.6 million barrels of oil per day.
For about the past 18 months, production has increased steadily, with an estimated 10.7 million barrels of oil per day produced in May. Currently, the oil and gas extraction industry employs 151,500 nationally.
Wilkerson’s work also shows productivity increased more than 60 percent from 2011
to 2016 in the broader mining sector, which he said includes drilling and completion services companies that provide support services on a contract or fee basis.
The nation’s recent surge in production per worker has been driven by drilling and technology enhancements, including longer horizontal laterals, multiwell pads, walking rig systems and increased proppant concentrations used in hydraulic fracturing, Wilkerson wrote.
Oil and gas firms are increasingly using data analytics to increase drilling accuracy and create process efficiencies.
Comparing the gains
Wilkerson said what makes the oil and gas industry’s recent productivity advances remarkable is that other sectors of the economy only rarely have experienced such rapid gains.
Using data collected since 1987 on 75 other unique industries, Wilkerson reported he only found three others where productivity had doubled in a five-year period.
Those were computer and electronic product manufacturing, electronics and appliance stores and wireless telecommunications carriers (excluding satellite communications).
In terms of size, the oil and gas extraction industry had fewer jobs than those, but greater capital investment.
His research also identified another five industries that had experienced a growth in productivity of greater than 60 percent within five years of time.
Those included utilities, nonstore retailers, travel arrangement and reservation services firms, employment placement (executive search) agencies and air transportation.
Comparatively, the overall mining sector had more jobs than all of these industries did when they reached 60 percent productivity growth, and higher capital investment than all but utilities.
Wilkerson noted the vast majority of investment in the mining sector industry is in oil and gas extraction, but said employment is spread more evenly across oil and gas extraction (29 percent), mining excluding oil and gas extraction (29 percent), and support activities for mining, including for oil and gas (42 percent).
Evaluating the future
Because industries that previously posted rapid productivity gains all did so more than a decade ago, Wilkerson said that gave him the ability to evaluate what happened to those industries since.
A constant for most, he said, is that their output levels have continued to climb.
But, when it came to capital investments needed to achieve that productivity, trends were more mixed.
Future employment trends were more uniformly negative.
Only one of the industries added jobs the following decade.
Wilkerson allowed that the oil and gas industry’s uniqueness makes drawing comparisons more difficult.
“Oil and gas is a commodity industry, and thus generally more susceptible to wide positive and negative swings in prices and activity,” he wrote. “Somewhat related, it is also an industry with a sizable cartel, OPEC, which can affect production levels of producing countries across the world.
“As such, future production trends could be considerably higher — or lower — than in past highproductivity industries.”
Still, he wrote that analyzing what happened in other industries in the years that followed their rapid expansions could provide insight into the future of the oil and gas industry.
“These past examples suggest the outlook in the next decade for Oklahoma and U.S. oil and gas production could be quite positive,” he wrote, noting that could be good for a state that collects revenues from associated gross production taxes.
But Wilkerson cautioned that the outlook for oil and gas investment and employment may be more uncertain.
“All of these industries are different from one another, in one way or another,” Wilkerson said. “So it may not happen in oil and gas the way it happened in the other industries where rapid growth occurred.
“But if the sector does not need to add more workers in the next 10 years, then there will need to be a shift in industrial mix for there to be job opportunities for everyone.”
He called that an opportunity for Oklahoma and other states the Federal Reserve Bank of Kansas City serves.
“It could be a positive thing, if diversification could increase and continue in some places.”