Cy-Fair companies brace for tighter government regulations as region's oil and gas industry slowly recovers from 2020 setbacks

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Houston’s oil and gas industry saw a perfect storm for yet another downturn in 2020 between weakened demand due to the COVID-19 pandemic and an international oil price war. Experts said while other industries are headed toward economic recovery, the energy industry will likely lag behind.

West Texas Intermediate crude oil dropped from an average of about $60 per barrel in January 2020 to less than $20 per barrel in April, and by the start of 2021, prices had not yet reached prepandemic levels, according to the U.S. Energy Information Administration.

Houston is down 31,000 energy jobs since the second quarter of 2019, said Bill Gilmer, the director of the University of Houston’s Bauer Institute for Regional Forecasting.

“We’re going to see the economy begin to recover and things begin to go back to some semblance of normality,” Gilmer said. “But the oil piece of this continues on for a while because it’s tied to the global economy.”

While the industry has been hit hard in the last year, Gilmer said it has been “six years of bad news” when it comes to the volatility of the upstream oil sector.

Advances in technology during that time have led to more efficient ways to extract, sell and store oil, said Dustin Bell, the head of mineral acquisitions and business development at an energy investment company that launched in Cypress last February called Allegiance Oil & Gas.

Local energy professionals expressed concerns about potential government regulations holding the industry back or forcing change too quickly as President Joe Biden’s administration sets sights on cleaner-energy initiatives.

“I think it’s always smart for us to prepare for ... more restrictions in drilling and more laws coming down that could make it a little tougher,” Bell said.

Industry snapshot

Around the same time demand for oil began to drop when the pandemic hit Houston, Saudi Arabia initiated an oil price war with Russia after Russian officials refused to reduce oil production to maintain reasonable prices. Oil hit a historic low of -$37.63 per barrel April 20, according to the Nasdaq stock exchange—a result of the expiration of oil futures contracts, Community Impact Newspaper reported.

“Sure, the pandemic had a lot of negative effects to [the industry], but not as much as Russia and Saudi Arabia playing with oil prices. That’s what really messed with the market,” Bell said. “I think the goal is to get comfortable with the cyclical side of the market ... and that’s just kind of a roller-coaster ride.”

Gilmer said the industry peaked in 2014 with about 240,000 Houstonians employed in energy—including oil producers, oil field services, machinery and fabricated metals sectors—about the same size of Houston’s energy workforce in the early 1980s.

But this was “a bubble just waiting to burst,” and over the course of 2015-16, the region lost about 77,000 energy jobs, he said. He said this helped right-size the industry, with about 50,000 of those jobs never being recovered.

Until around 2018, Gilmer said oil and gas executives had a growth stock mentality, meaning they would invest money from stock sales back into the company with no intention of offering dividends. Now, the industry is seen more as a value stock—a slow-growing company that must offer significant dividends to attract investors.

State Rep. Mike Schofield, R-Katy, whose district starts just west of the Energy Corridor in Katy and covers parts of Cypress, said while oil and gas may not be as dominant locally as it once was, fluctuations in the industry have a domino effect on other sectors of the economy because it still supplies so many local jobs.

“You cannot damage the oil and gas industry without severely damaging the families that live here,” Schofield said. “In my district anyway, when I knocked on doors, it was a bipartisan concern. ... Everybody either was affected by it personally or their family was or their neighbors were.”

Major oil and gas companies based in the region laid off thousands of employees throughout 2020, including Chevron, which acquired northwest Houston-based Noble Energy in October and announced plans to lay off 25% of the staff. ExxonMobil also announced staff reduction plans last fall that would affect 1,900 employees—most of which were in Houston-based management offices, officials said in a statement.

Patrick Jankowski, senior vice president of research at the Greater Houston Partnership, said he projects the region will continue to lose 2,000-5,000 energy jobs in 2021. He said layoffs typically occur in the first quarter of the year, but prospects could improve with the economy.

“We’re not going to rebound like we have in the past,” Jankowski said of the oil and gas industry, citing industrywide permanent restructuring.

Local implications

Arnold Gacita, who works in the less-volatile automotive chemical side of the oil industry, said his Cypress-based company, Petra Oil Co., was hit hard at the start of the pandemic.

“[In] March and April, the automotive industry took a hit as the pandemic got here and as the lockdowns began. ... People were staying home; nobody was driving,” he said.

The company pivoted to producing hand sanitizer—resulting in higher revenue last May through July than was brought in the previous year, Gacita said.

Petra Oil Co. distributes to 36 countries, so while business in the U.S. started picking up in May, the international side of the business continues to struggle as other countries have shut down even essential operations.

“I think we’re going to overcome• this pandemic if we do the right things in the next few months,” Gacita said. “I would say more concerning to the oil and gas [industry] is probably politics. If we’re already struggling and the pandemic has already lowered revenues ... the [last] thing you want is some politician making rules that your business has to change.”

State Rep. Jon Rosenthal, D-Houston, said a significant portion of his constituents in Cy-Fair and Jersey Village work in energy, and he previously designed equipment manufacturing systems for oil and gas companies.

He said oil demand has picked up slightly since the start of the pandemic, but as local businesses continue remote operations, oil rig counts are still lower than what Houston has seen in the past. According to data from Baker Hughes, the average number of running rotary rigs in the Houston region dropped from 56 in January 2014 to 12 in January 2020 and was at two this January.

Rosenthal said revitalizing the industry will mean branching into renewable energy sources. He is working on legislation that would expand Texas’ energy industrial base through incentive programs similar to ones proven in neighboring states.

“Adding [renewable and green energy] to what we do will help us revitalize our energy industry in Texas and especially in Houston, where some of these higher-level trained professionals are having difficulty finding work in their chosen profession,” he said.

Looking ahead

While industry leaders are bracing for increased regulations from the federal government, Bell said most oil companies want to innovate to operate in a way that is cleaner and safer.

“They’re not just a bunch of careless folks out in the field just drilling holes in the ground and not caring,” he said. “They’re doing their best to make this better for the environment—clean drilling, no spills [or] accidents.”

Biden issued an executive order Jan. 27 that halted new oil and gas leases on public lands and waters and called for the review of existing permits for fossil fuel development as part of his plan to tackle climate change. The next day, U.S. House District 2, Republican Rep. Dan Crenshaw introduced a bill that would override the president’s order if passed into law and ensure oil producers retain access to energy reservoirs in the Outer Continental Shelf.

“Undermining Texas energy jobs and American energy independence appears to be a top priority of the Biden-Harris White House, and the administration is showing little regard to the livelihoods of blue-collar workers who are already struggling during this pandemic,” he said in a statement.

David Bat, the president of Kimberlite, an international oil field research and consulting group, said oil consumption should be back to where it was before the pandemic by 2022, and Gilmer said the price of oil should return to $65 per barrel by that time.

In the meantime, Bat said strategies for companies to survive the pandemic have been to reorganize to bring revenues and expenditures in line and to invest more in remote operations and digital technology.

“Generally speaking in the oil and gas industry, being able to accomplish more with less has been the mantra,” he said. “The oil and gas industry has always come through the most painful of times. And as painful as the adjustments are, what doesn’t kill you makes you stronger, and that’s certainly been true for the oil and gas industry over the decades.”

Vanessa Holt and Ben Thompson contributed to this report.
By Danica Lloyd
Danica joined Community Impact Newspaper as a Cy-Fair reporter in May 2016 after graduating with a journalism degree from Union University in Jackson, Tennessee. She covers education, local government, business, demographic trends, real estate development and nonprofits.


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