The contraction of the upstream oil and gas economy in Texas continues.
The Texas Petro Index (TPI), a service of the Texas Alliance of Energy Producers, declined again in October for the 11th straight month, to 212.3, 32.2 percent less than in October 2014 when the TPI reached a record 313.2**. Again in October, all TPI indicators but crude oil and natural gas production showed hefty year-over-year declines.
“Amid all the chatter about when crude oil production may have peaked and rolled over in Texas and the US the sentiment about prospects for recovery has become increasingly pessimistic--which is to say, realistic--as the year has progressed,” said Karr Ingham, the economist who created the TPI and updates it monthly. “It seems the most optimistic outlooks expect the beginning of meaningful recovery to appear no sooner than the latter half of 2016.
“But we simply do not know how that will look at this point.”
Although the TPI shows oil production in Texas peaked in mid-2015, Ingham noted that statewide crude output in October still exceeded the volume of oil recovered in October 2014, “and amount of crude oil in storage continues to rise rather than decline.” Other indicators--such as rig activity, permitting, wellhead prices, and industry employment--continued declining through October. And the picture has worsened even since then, he said, as the price paid to producers for crude oil has continued to fall along with weekly rig counts.
“Until crude oil production actually begins to decline meaningfully and the volume of oil in storage begins to contract rather than expand, there is little reason to expect prices to recover and activity levels to begin to increase,” Ingham said.
Considering the extent of the TPI decline in the past year, Ingham said, “At this point it has become apparent that the low point of 187.5 in the previous economic cycle (prior to the expansion that began in January 2010) is in jeopardy;”
Ingham said the TPI is “almost certain” to fall below that trough in coming months. “In fact, if the TPI loses at least 40% of its value--as we predicted in January--it would mark the first time the low point of a contraction falls below the nadir of the previous cycle.
“At this point, the end of the current contraction is not known and cannot be foreseen,” Ingham said. “But we know this much: it will be the deepest and longest in the history of the TPI, which is based in January 1995.”
A composite index based upon a comprehensive group of upstream economic indicators, the Texas Petro Index in October was 212.3, 32.2% less than in October 2014. Before embarking upon the current economic downturn, the TPI peaked at a record 313.2 in October and November 2014, which marked the zenith of an economic expansion that began in December 2009, when the TPI stood at 187.5.
Among leading TPI indicators during October:
- Estimated crude oil production in Texas totaled nearly 107 million barrels, about 7 million barrels (7.1%) more than in October 2014. With crude oil prices averaging $42.90/bbl, the value of Texas-produced crude oil totaled about $4.59 billion, 43.3 percent less than in October 2014.
- Estimated Texas natural gas output was nearly 753.4 billion cubic feet, a year-over-year monthly increase of 1.7%. With natural gas prices in October averaging $2.31/Mcf, the value of Texas-produced gas decreased 36.7% to about $1.75 billion.
- The Baker Hughes count of active drilling rigs in Texas averaged 349, compared to 899 in October 2014. 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. In the most recent economic expansion, which began in December 2009, the statewide average monthly rig count peaked at 932 in May and June 2012. The statewide rig count was at 904 as recently as the fourth week of November 2014.
- The number of Texans on oil and gas industry payrolls averaged an estimated 250,230, according to statistical methods based upon the Texas Workforce Commission’s Quarterly Census of Employment and Wages, about 17.8% less than in October 2014, in which the TPI estimate was based upon the TWC’s Current Employment Statistics (CES) series.** According to calculations based upon CES data, a record 306,000 Texans held oil and gas industry jobs in December 2014. Using the CES as a benchmark, Ingham calculated the nadir of upstream oil and gas industry employment in Texas before the December 2014 record to be 175,700 in October 2009. During the previous growth cycle, industry employment peaked at 219,900 in October 2008.
** Beginning in October, TPI creator Karr Ingham began using state employment data that better reflect current oil and gas industry employment trends, thus painting a more realistic picture of the industry’s job losses in the current contraction. The TPI has been revised accordingly.