Analyst Talks USA Shale Patch Wages

Wages in the U.S. shale patch are on course to remain elevated until the end of 2024.

That’s what Rystad Energy’s Senior Analyst Sumit Yadav said in a new market update sent to Rigzone, adding that the company had analyzed oil and gas wages for more than 30 “critical” oil and gas trades, factoring in overall macroeconomic conditions and focusing on the Permian, Eagle Ford, Haynesville, Williston and Appalachian basins until 2027.

“The underlying drivers guiding our research include a spike in operator spending levels, which we expect to increase by more than 70 percent compared to 2020 levels, and an increase in production levels, with most basins registering a double-digit growth by 2024 compared to 2022 levels,” Yadav stated in the update.

“The increased spending and production levels are poised to stimulate labor demand in an already tight labor market and help wages maintain their upward trajectory,” he added.

“Stagnant labor force growth and unemployment rates will also keep wages elevated in the near term,” Yadav continued.

In the update, the Rystad Energy Senior Analyst noted that the combination of low labor force growth and unemployment levels exacerbated by growing competition from the renewables industry, and growing retirements, is bound to increase the bargaining power of job seekers and result in robust wage growth.

“We expect average wage growth in the key trades and basins we analyzed will range between 2.5 percent and 7.2 percent for 2023 and 2024,” Yadav said in the update.

“After 2024, we expect operator spending levels to peak, production growth to slow down, and the impacts of the U.S. Federal Reserve’s stringent monetary policies to become more evident,” he added.

“This will reduce macro labor demand and significantly offset the impact of retirements and stagnant labor force participation, tempering the pace of wage growth,” he went on to state.

USA Labor Market

Yadav highlighted in the update that the U.S. labor market has been at its tightest levels in more than five decades and said that, in line with the broader economy, the country’s oil and gas labor market has also seen increased tightness in recent months.

“The tightness in the labor market had been even more pronounced for the oil and gas sector, where unemployment stood at three percent in February, even lower than the wider economy rate of 3.5 percent before rising in March,” Yadav said in the note.

“The prevailing tightness in the U.S. oil and gas labor market has thereby resulted in increased pain for industry players across leading shale basins as they have had to shell out a premium to attract and retain workers,” he added.

“A prominent example is Midland County in the core Permian Basin where wages increased nearly 14 percent by the third quarter of 2022 on an annual basis – a wage growth level that was the highest across all counties in the U.S.,” Yadav continued.
The Rystad analyst revealed that Rystad research showed “leading” oil-producing counties across “key” U.S. shale basins “experienced a similar fate, with wage growth across the basins averaging more than nine percent for 2022”.

Texas Upstream Employment

Direct Texas upstream employment for February 2023 totaled 197,900, according to an analysis from the Texas Independent Producers and Royalty Owners Association (TIPRO) published on March 24, which cited the latest Current Employment Statistics (CES) report at the time from the U.S. Bureau of Labor Statistics (BLS).

That figure marked a decrease of 700 jobs from January employment figures, TIPRO outlined in the analysis but noted that this drop in employment was likely a statistical anomaly “given the positive job posting data for the month, workforce trends and that revised CES numbers will ultimately likely show an uptick in upstream employment in February”. 

Texas upstream employment in February 2023 represented the addition of 20,100 positions compared to February 2022, including an increase of 900 jobs in oil and natural gas extraction and 19,200 jobs in the services sector, TIPRO stated in the analysis.

TIPRO noted in the analysis that there were 11,981 active unique jobs postings for the Texas oil and natural gas industry in February, “including 4,601 new job postings added in the month by companies”. 

On March 14, the Texas Oil & Gas Association (TXOGA) stated that data released by the Bureau of Labor Statistics and Texas Workforce Commission indicated that upstream oil and gas employment in Texas continued to grow, “with the sector adding an additional 1,700 jobs in January”.

“At 198,100 upstream jobs, compared to the same month in the prior year, January 2023 jobs were up by 24,000, or 13.8 percent, over January 2022,” TXOGA noted.

“Since the Covid-low point in September of 2020, months of increase in upstream oil and gas employment in Texas have outnumbered months of decrease by 25 to three. Industry has added 41,100 Texas upstream jobs, averaging growth of 1,468 jobs a month,” TXOGA added.

“These jobs pay among the highest wages in Texas, with employers in oil and natural gas paying an average salary of approximately $115,000 in 2022,” the organization continued.

To contact the author, email andreas.exarheas@rigzone.com