As oil prices rise, industry outlook improves
Houston’s energy sector has continued to recover from 2016’s oil bust as prices rise to $70 per barrel from the $25 range seen two years ago, incentivizing companies to resume offshore drilling and improving the industry’s outlook from the perspective of academia.
According to Union Pacific and Forbes, crude oil prices dropped to around $25 per barrel in 2016, resulting in the loss of around 4,300 jobs in Houston. A similar drop can be seen in enrollment numbers for petroleum and subsea engineering students at the University of Houston in the past two years — but faculty believe rising oil prices signal a change in the industry.
“The rise in oil price is a positive for our students,” said Christine Ehlig-Economides, a professor at the College of Engineering. “I think companies are back trying to hire, but not at the crazy level before the downturn.”
Ehlig-Economides said companies encouraged academia to increase numbers. In 2011-12, the University focused on meeting the industry’s demand, increasing undergraduate petroleum enrollment from 224 in Fall 2011 to 963 in Fall 2015, according to enrollment figures. Similarly, undergraduate subsea engineering enrollment rose from 10 in Fall 2011 to 68 in Fall 2015.
Enrollment numbers for undergraduate petroleum engineering dropped from 963 in Fall 2015 to 532 in Fall 2017, according to enrollment figures. Subsea engineering enrollment also dropped from 68 in Fall 2015 to 20 in Fall 2017.
Subsea engineers specialize in offshore petroleum exploration. UH opened the first graduate subsea engineering program in the country, according to the college’s website, and University students founded the first subsea engineering organization — the Subsea Engineering Society.
“You get a bubble,” Ehlig-Economides said. “I would say last year, this year and next year there will be more graduates than is probably going to be the sustainable number.”
As a result, graduates have a hard time finding employment, she said, but hiring percentages will improve from last year.
Enrollment numbers dropped in Ehlig-Economides’ class following 2016’s oil bust. Last spring, she had around 180 students, a 40 student drop from two years ago.
Since it’s been difficult to find jobs, Ehlig-Economides said students opt to enter graduate programs if they can afford it — sometimes petroleum, sometimes another direction.
“I think far bigger numbers are still going to be hired,” Ehlig-Economides said.
Companies paused offshore drilling projects after the bust, Ehlig-Economides said, but production in the Permian Basin — located in East Texas — and Bakken remained high.
While operation costs regularly range between $100-300 million for offshore drilling, Ehlig-Economides said oil well prices in the Permian hover around $5 million, “undermining the competitiveness of deepwater offshore (drilling).”
Offshore drilling has a capital barrier that the Permian doesn’t experience, she said, but large companies prefer this method, as it has a higher potential upside.
Deepwater offshore also demands electrical, civil and mechanical engineers, not just petroleum and subsea engineers, she said.
Increasing demand likely caused higher prices, she said.
Ed Hirs, an economics lecturer in the College of Liberal Arts and Social Sciences, said U.S. producers are “high-cost players.”
“They’re unable to profit at the prices that OPEC pushed on the industry,” Hirs said. “The U.S industry lost over $250 billion in capital, lost over 250,000 direct jobs and there were more than 300 bankruptcies.”
Hirs said offshore drilling is resuming because of increasing prices.
Adeyinka Aremo, a graduate student at the College of Engineering and secretary of the Subsea Engineering Society, said being a subsea engineer is a rare opportunity.
“I think the rise of oil prices is good, because a lot of projects are coming up,” Aremo said. “UH being the only school having subsea engineering has made it a good opportunity since most of the projects coming up are offshore.”
Ehlig-Economides said she expects hiring percentages to keep improving.