Economist: Industry ‘bloodletting’ to continue in Texas

Dramatic decreases in Texas upstream oil and gas industry economic indicators—even crude oil production—suggest a continued “bloodletting” in 2016, an economist indicated this week.

The Texas Petro Index (TPI) in January fell 40% year-over-year and below its nadir of the 2008-09 downturn. The composite index, based on a comprehensive group of upstream economic indicators released by the Texas Alliance of Energy Producers (TAEP), measured in at 181.9, compared with 187.5 in December 2009, which marked the beginning of an economic expansion that peaked at a record 313.4 in November 2014.

Crude production in Texas during the month totaled 102.2 million bbl, down 2.3% compared with that of January 2015. The value of Texas-produced crude was nearly $2.92 billion, down 36.8% year-over-year.

“It is at least somewhat encouraging that estimated crude oil production in Texas actually posted a year-over-year decline in January,” explained Karr Ingham, economist and TPI creator. “Although the decline was modest, we can expect the pace of production decline in Texas and the US to accelerate in 2016.” 

While the TAEP estimates the first year-over-year decline in monthly Texas production in the current cycle occurred in January, the US Energy Information Administration estimates the first year-over-year decline in monthly US crude 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,” he said.

Absent market improvement, Ingham said activity indicators would continue to languish and that more job losses appear inevitable. Ingham estimates the Texas oil and gas industry lost about 76,000 jobs through January from a peak of 306,000 in December 2014.

An estimated 230,105 Texans remained on upstream industry payrolls as of January. Ingham noted the trough in upstream employment before the expansion was 175,700 in October 2009. 

“The last time the crude-oil price and the rig count were at present levels, upstream oil field employment in Texas was about 100,000 less than the January 2016 estimate of about 230,000,” Ingham said. “That suggests the bloodletting in Texas’ upstream oil and gas industry will continue as the year progresses.”

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