The contraction in the Texas upstream oil and gas economy has now been in place for two years with the November decline in the Texas Petro Index. The TPI, a monthly measure of upstream activity in the state, declined for the 24th straight month in November falling to 148.1, down from 149.1 in October and down 26.4% from the November 2015 TPI of 201.2. The Texas Petro Index peaked at 313.5 in November 2014 and has lost 52.7% of its value through November 2016.
Karr Ingham, the economist who created the TPI and updates it monthly, said November might well turn out to be the low point in the current cycle. For one thing, crude oil prices have remained stronger since dropping to a low point in February, spurring up-ticks in drilling and permitting activity; industry employment has stabilized as a result.
"Of course, no one knows where prices are headed from here," Ingham said. "But momentum continued building during November for higher levels of exploration and production activity and higher prices in 2017 for both crude oil and natural gas."
Importantly, Ingham calculated the November TPI based upon Texas oil and gas industry conditions that existed before an agreement this month to curtail 1.2 million barrels per day (b/d) of production by OPEC and other key non-OPEC oil producers pushed oil prices above $50 per barrel ($/bbl) in late December.
"The market has clearly accepted that agreement at face value, but whether participating countries will hold to lower volumes has yet to be determined," Ingham said. "But in any case, the agreement will not permanently remove 1.2 million b/d of oil from the global marketplace. Ultimately, a significant portion of that volume will be produced elsewhere—Texas and the US most notably—and there is every possibility that prices will be held in check as a result.
"Whatever happens to prices, however, parties to the agreement to curtail output in effect have ceded market share to competing producers in Texas and the US, and they'll take it gladly."
A composite index based upon a comprehensive group of upstream economic indicators, the Texas Petro Index in November was 148.1, 26.4% less than in November 2015. Before the current economic downturn, the TPI peaked at a record 313.5 in November 2014, which marked the zenith of an economic expansion that began in December 2009, when the TPI stood at 187.4.
Texas E&P highlights in November 2016
- Crude oil production in Texas totaled slightly more than 93.7 million barrels, 8.3% less than in November 2015. With oil prices in November averaging $42.06/bbl, the value of Texas-produced crude oil came to about $3.94 billion, 1.7% less than in November 2015.
- Estimated Texas natural gas output surpassed estimated 649.4 billion cubic feet, a year-over-year decline of about 8.5%. With natural gas prices in November averaging $2.38/Mcf, the value of Texas-produced gas increased about 7.3% to nearly $1.55 billion.
- The Baker Hughes count of active drilling rigs in Texas averaged 271, 20.1% fewer units than in November 2015 when an average of 339 rigs were working. 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 number of original drilling permits issued was 673, about 2% less than the 687 permits issued in November 2015. The number of permits issued this year through November, 7,104, represented a decline of 27.7% compared to the first 11 months of 2015.
- An estimated 205,675 Texans remained on upstream oil and gas industry payrolls, based upon revised quarterly data from the Texas Workforce Commission, about 12.1% fewer than in November 2015 and about 32.8% fewer than the estimated high of about 306,020 in December 2014. According to TPI estimates, the trough of upstream oil and gas employment in Texas before the expansion ending December 2014 was 184,640 in October 2009. During the previous growth cycle, industry employment peaked at 225,965 in October 2008.
The Texas Petro Index is a service of the Texas Alliance of Energy Producers, the nation's largest state association of independent oil and gas producers.