Finally, in January, 19 months into the crude oil price collapse, Texas producers recovered less crude oil than in the same month the previous year. The economic contraction gripping the upstream oil and gas industry squeezed tighter, forcing more layoffs, idling more drilling rigs, and driving well-permitting activity to a record monthly low.
So dire were industry economic conditions, the Texas Petro Index (TPI) in January declined to 181.9, nearly 40% less than in January 2015 and the first time in its existence the TPI fell below the lowest point of the previous industry economic cycle. Following a decline that began in September–October 2008, the TPI reached a nadir of 187.5 in December 2009 before embarking upon a five-year expansion that finally stalled at year-end 2014.
“It is at least somewhat encouraging that estimated crude oil production in Texas actually posted a year-over-year decline in January,” said Karr Ingham, the economist who created the TPI and updates it monthly. “Although the decline was modest, we can expect the pace of production decline in Texas and the US to accelerate in 2016.”
While the Texas Alliance of Energy Producers estimates that the first year-over-year decline in monthly Texas production in the current cycle occurred in January, the US Energy Information Administration estimates that the first year-over-year decline in monthly US crude oil production since 2011 occurred in December 2015.
“But until both production and storage volumes begin to reflect meaningful declines, there is little reason to expect any appreciable improvement in market conditions,” Ingham noted.
Absent meaningful market improvement, Ingham said that activity indicators would continue to languish and that more job losses appeared to be inevitable. According to the best-available statistical data, Ingham estimates that the Texas oil and gas industry lost about 76,000 jobs through January from peak employment of 306,000 in December 2014.
“The last time the crude oil price and the rig count were at present levels, upstream oilfield employment in Texas was about 100,000 less than the January 2016 estimate of about 230,000,” Ingham said. “This suggests that the bloodletting in Texas’ upstream oil and gas industry will continue as the year progresses.”
A composite index based upon a comprehensive group of upstream economic indicators, the Texas Petro Index in January was 181.9, 39.9% less than in January 2015. Before the current economic downturn, the TPI peaked at a record 313.4 in November 2014, which marked the zenith of an economic expansion that began in December 2009, when the TPI stood at 187.5.
TPI highlights in January:
- Crude oil production in Texas totaled an estimated 102.2 million barrels, 2.3% less than in January 2015. The value of Texas-produced crude oil totaled nearly $2.92 billion, 36.8% less than in January 2015.
- Estimated Texas natural gas output was more than 721.3 billion cubic feet, a year-over-year monthly decline of 1.3%. With natural gas prices in January averaging $2.22/Mcf, the value of Texas-produced gas declined 25.3% to about $1.6 billion.
- The Baker Hughes count of active drilling rigs in Texas averaged 305, compared to 773 in January 2015. 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 906 as recently as the third week of November 2014, but fell to 231 in the fourth week of February 2016.
- An estimated 230,105 Texans remained on upstream oil and gas industry payrolls as of January 2016, down 25% from a high of about 306,000 in December 2014. According to Ingham, the trough in upstream oil and gas industry employment in Texas before the expansion ending December 2014 was an estimated 175,700 in October 2009. During the previous growth cycle, industry employment peaked at 219,900 in October 2008.
The Texas Petro Index is a service of the Texas Alliance of Energy Producers, a state association of independent oil and gas producers.