Texas oil and gas producers defied falling crude oil prices in October, setting well-permitting and employment records and pushing the Texas Petro Index (TPI) to a high of 312.9. However, wellhead prices continued to decline in November, dropping to a posted price of $62.50 per barrel for West Texas Intermediate crude on the Plains Pipeline system after OPEC opted to maintain current production quotas, leaving little doubt that a contraction of the Texas upstream oil and gas economy was in the offing after nearly five years of spectacular expansion.
“At this point a contraction is unavoidable,” said Karr Ingham, the economist who created the TPI and maintains it monthly. “But other than the direct impact on the value of Texas crude oil production, lower wellhead prices in October did not appear to affect other upstream oil and gas indicators.”
Ingham said that upstream oil and gas activity in Texas, as reflected by the TPI, likely would peak later this year or very early in 2015 and would enter into a state of decline for some period of time, depending on what happens to crude oil prices.
“Regardless of the depth or duration of an economic decline, producers in Texas might be better positioned to weather that storm than most might think as a result of declining tight-oil production costs,” Ingham said. “Production costs can be expected to moderate as lower oil prices undermine demand for many wellsite supplies and services, and service companies and suppliers compete for dwindling business opportunities by lowering fees and prices.”
A composite index based on a comprehensive group of upstream economic indicators, the Texas Petro Index in October was 312.9, 5.8% higher than in October 2013. Before the current economic expansion, the TPI’s previous all-time high of 287.6 was in September and October 2008, after which the TPI declined to 188.5 in December 2009 before starting its current growth cycle.
Among leading TPI indicators during October:
- Crude oil production in Texas totaled an estimated 98.2 million barrels, about 22.1% more than in October 2013. With crude oil prices in October averaging $80.94/bbl, the value of Texas-produced crude oil totaled nearly $7.95 billion, 1.7% less than in October 2013.
- Estimated Texas natural gas output was more than 702.1 billion cubic feet, a meager year-over-year monthly increase of about 0.3%. With natural gas prices in October averaging $3.87/Mcf, the value of Texas-produced gas increased 12.7% to more than $2.7 billion.
- The Baker Hughes count of active drilling rigs in Texas averaged 899, increasing 9.6% from 820 active rigs in October 2013. Drilling activity in Texas peaked in September 2008 at a monthly average of 946 rigs before falling to a trough of 329 in June 2009. During the current economic expansion, the statewide average monthly rig count peaked at 932 in May and June 2012.
- The number of Texans on oil and gas industry payrolls averaged a record 312,200, according to statistical methods based upon Texas Workforce Commission estimates, about 10.3% more than in October 2013. Upstream oil and gas industry employment in Texas has increased steadily since falling to a nadir of 179,200 in October 2009. During the previous growth cycle, industry employment peaked at 223,200 in November 2008.
The Texas Petro Index is a service of the Texas Alliance of Energy Producers, a state association of independent oil and gas producers.