Oil and Gas Industry Archives - Colorado-based Business and Economic Research

Colorado Job Growth On Solid Footing

October 16, 2015October 20, 2015 horvath Leave a comment

This post touches on a few of the national and state trends that will affect Colorado job growth through the remainder of the year. They are made In anticipation of the September release of employment data from the BLS

National Trends That Affect Colorado

Nationally, there are several trends that are relevant to Colorado:
• Jobs are being added at a slower rate than in the past, yet the U.S. is on track to add about 3 million jobs this year. This will be the fifth consecutive year for accelerated job growth.
• The slower rate of job growth is occurring for two reasons. First, the slowdown in the Chinese economy has caused a pullback in other economic growth in other countries. Second, U.S. job growth has reached a point where the past level of job growth cannot be sustained. A slowdown in this case does not suggest the country is headed for a downturn.
• Real GDP growth for 2015 will remain in the neighborhood of 2.5%.
• The service sector will continue to post solid growth through the end of the year, while manufacturing remains sluggish.
• Holiday sales will be so-so. Industry experts expect an increase of 3.5% to 4.0% compared to last year. Stronger labor markets and lower gas prices should point to stronger sales; however, the savings rate is around 4.6%. At this point consumers appear to be cautious.
• It is likely the strong level of mergers and acquisitions will continue. Companies have money and they appear to be ready to spend it when the time is right. This has impacted several companies in Colorado.

Colorado’s Economic Trends

There is conflicting employment data. The Bureau of Labor Statistics shows that Colorado employment has trended downward beginning in Q2, with a significant decline in the rate of growth in August. There are also indications the number of jobs added for the first half of the year will be revised upward with the benchmark revisions.

Either way it is likely the rate of Colorado job growth is declining, in line with the national trends. The state will feel the effects of a slower global economy. As well, Colorado has reached a level of job growth that is unsustainable.

The bottom line is that Colorado will continue to have a higher rate of job growth than the U.S. for the remainder of the year and into next year.

The Impact of Job Losses in the Oil and Gas Industry on the Colorado Economy

August 29, 2015October 20, 2015 horvath Leave a comment

About a year ago the Colorado Oil and Gas Industry was turned upside down. Almost overnight the price for a barrel of oil plummeted.

Since dropping, prices for a barrel of oil have remained low, rig count has dropped, employment has declined, BUT production has remained at record levels. At some point the disruption will become more settled and Colorado will move forward with a smaller oil and gas industry.

Projected revisions to the BLS employment data for Colorado suggest the oil and gas industry could be reduced by 1,000 jobs for 2015. Although the industry is small from an employment perspective, it is significant in terms of gross domestic product for the state and MSAs. This is particularly true in Mesa, Weld, and Denver counties. Much of the drilling occurs in Mesa and Weld counties and many of the headquarters or company offices are located in the Denver MSA.

The IMPLAN model is designed to show how changes in employment or sales could impact the state economy. In this case, the Colorado Labor Market Information group has produced projections suggesting there will be a loss of 1,000 jobs in the oil and gas industry for 2015. The IMPLAN model indicates this will cause an additional loss of 1,800 indirect and induced jobs. In addition there will be a combined loss of $657 million in direct, indirect, and induced sales in the Colorado economy.

To date the robust mix of industries in Colorado has offset the job losses in the extractive industries. That is likely to continue for the remainder of the year and into 2016.

The Impact of the Decline in the Price of Oil on Colorado

June 6, 2015June 25, 2015 horvath Leave a comment

The recent release of BLS wage and salary employment data for Colorado showed that after four months the state is on track to add 71,400 workers. This is slightly below the cber.co forecast range of 73,000 to 79,000.

The softness in job growth may be attributed to the decrease in the price of oil, which bottomed out at $43 per barrel on March 17. A prominent Boulder economist has stated that average annual state employment for the year would fall to 40,000 because of the decline in oil prices. So far, the impact has been minimal.

In April there were 34,400 jobs (NSA) in the Mining and Logging Sector, which includes the mining and oil and gas industries. This is down about 1,300 jobs from December but about 1,800 jobs above the April 2014 total. The sector had record employment this past December.

Some of the factors that have affected demand are:
• Over time global demand for oil has declined, in part because of increased energy efficiency and an increase in the number of alternate sources. That decrease is expected to continue in the future.
• The number of Colorado rigs in operation has dropped sharply in the past six months.

• Oil production in Colorado reached a record high in 2014. Despite the decline in oil prices, monthly production has remained near record levels; however, at some point reduced production is expected if prices remain suppressed for an extended period.

• Nationally, Colorado is a second-tier state for production; however, the oil and gas industry is a significant contributor to the state’s Gross Domestic Product. Today, the U.S. is producing about 80% of the oil used domestically, a significant change from five years ago. This means that Colorado producers will continue to drill, although production may be at lower levels.
• The price per barrel and the breakeven point are less critical than they were five years ago. Producers have become more efficient by reducing overhead and adopting improved technology such as super-fracking. In addition they have capped wells that are older or less efficient. Through increased efficiencies, companies have been able to lower the break-even point for many of their plays and adjust to lower prices per barrel.
• Since March 17th, the price per barrel has risen and reached $60 per barrel in early May. The consensus is that it will remain around that level for the remainder of the year.

These factors will have the following implications on the state:
• Colorado has a diverse energy industry. It is a strong second tier oil and gas state, it has companies that manufacturer solar and wind energy equipment, and significant energy research is conducted locally. Because energy is critical to the security of the U.S., the state will benefit from having a balanced energy portfolio.
• The reduction in the number of rigs will result in a fewer workers in the industry and its supply chain.
• Because production has remained at a high level, the industry’s contribution to the state GDP may not be as adversely impacted as originally thought.
• Oil and gas companies are evolving in a manner similar to manufacturing and other industries – they are becoming much more efficient. Increased efficiencies are expected to continue and many of the jobs that are being eliminated will not return.

Increased efficiencies will allow American companies to continue to be competitive, which in turn will help the U.S. be an “energy independent” nation. In a convoluted way, the Colorado oil and gas industry may actually benefit in the long run from the recent drop in the price of oil.

Where is the Colorado Oil and Gas Industry Headed?

May 1, 2015May 22, 2015 horvath Leave a comment

There has been concern by some that the freefall in the price of a barrel of oil last year would cause a sharp downturn in the Colorado economy.

In fact, the University of Colorado Leeds School of Business has projected that the loss of oil and gas jobs will cause total employment to grow at a rate less than 2.0% this year. That means that average employment for the year would be less than 50,000. It would also mean that average job growth for the last three quarters of the year would be at most 41,000 jobs.

The 2015 cber.co forecast projected a slight decline in the rate of growth (+73,000 to 79,000 jobs), in part because of uncertainty in the oil and gas industry. It seems unlikely the decline will be as severe as projected by the Leeds School.

A frequently quoted data set is rig count. The data shows a sharp drop-off in the number of rigs. The immediate reaction is that “the sky is falling.”

Industry experts state this decline in the number of rigs has occurred, in part, because companies have taken their older and poorer performing rigs off-line to increase their efficiency. This is no different than the Denver Broncos cutting Champ Bailey. A decrease in the number of rigs will eventually point to a decline in the number of employees.

In addition, some companies are adopting improved technology, which has the potential to make the drilling process much more efficient and environmentally friendly. Increased efficiency means that when some of these jobs go away they won’t ever come back. In that sense, the oil and gas industry is moving down the same path as manufacturing and other industries.

Another interesting data set is oil production.

Colorado oil production reached records levels in 2014 and is expected to remain strong through Q1 2015. Levels of production may drop off in Q2 as storage becomes an issue.

Another issue affecting production levels is demand. Global demand for oil has been declining as alternate sources of energy have become more available. In addition, more efficient automobiles and other devices have reduced consumption. Despite the decline in demand, the U.S. has become less dependent on foreign countries for our oil supplies. In turn that will drive demand for U.S. oil.

Looking ahead – employment in the Colorado oil and gas industry will either grow at a slower rate or decline slightly in 2015. The state economy is on solid enough footing that many of those lost jobs will be offset by increases in other industries such as construction, finance, and manufacturing.

In short, the Colorado Oil and Gas Industry is in a state of flux, but it is unlikely that volatility will cause a noticeable downturn in state employment.

Grand Junction and Greeley – Boom and Bust

March 31, 2014June 17, 2014 horvath Leave a comment

Energy is a mixed blessing (boom and bust) to local economies in Colorado, specifically Grand Junction and Greeley.

Since 1991, the Grand Junction MSA has added jobs at an annualized rate of 2.4% compared to 2.0% for the state.

Mesa County enjoyed strong growth in the first part of the 2000s because of the oil and gas industry. Unfortunately, it also experienced a bust in 2009.

The Grand Junction MSA employment has not returned to the peak level of 2008.

boom and bust

Since 1991, the Greeley MSA has added jobs at an annualized rate of 2.9% compared to 2.0% for the state.

Similar to Mesa County it experienced a boom as a result of exploration in the Niobrara gas fields. As well, the local economy benefitted from a Vestas turbine factory. While the county experienced a downturn in conjunction with the Great Recession, Greeley MSA employment returned to the peak level of 2008 in January 2012.

Despite the boom and bust cycles, both communities have experienced a stronger rate of growth over the past two decades than the state.