A recent increase in crude oil prices to roughly twice their February level has provided some optimism for the Texas upstream industry, but economist Karr Ingham warns the residual suffering will continue.
“It appears increasingly likely that we have seen the bottom, and that is certainly cause for some celebration and cautious optimism about where we are headed at this point,” said Ingham, creator of the Texas Alliance of Energy Producers’ Texas Petro Index.
“But just as other indicators of upstream oil field activity in Texas continued to increase for several months after prices began to fall in 2014, these same indicators will continue to decline for several months following a change for the better in crude oil prices,” Ingham explained.
A composite index based upon a comprehensive group of upstream economic indicators, the TPI in April was 164.5, down 40.3% compared with its level in April 2015.
Before the current economic downturn, the TPI peaked at a record 313.3 in October and November 2014, which marked the zenith of an economic expansion that began in December 2009 when the TPI stood at 187.4.
Rig, job counts falling
TAEP notes the state’s monthly rig-count average in April declined to fewer than 200 for the first time since June 1999. The 173-unit count in the last 2 weeks of May was 81% lower than the weekly count in November 2014 just prior to the onset of the rig count dive (OGJ Online, May 27, 2016).
The number of original drilling permits issued in April was down 20% year-over-year. The number of permits issued this year through April was down 40% compared with the average of the first 4 months of 2015, and was the lowest January-April total in the history of the TPI analysis.
With drilling activity in Texas falling more than 80%, Ingham described it as a “minor miracle” that just 32% of jobs have been cut since upstream petroleum industry employment peaked at more than 306,000 jobs in December 2014.
According to the TPI, another 6,300 jobs were eliminated in April, leaving upstream petroleum employment at an estimated 207,100, suggesting the loss of nearly 99,000 jobs thus far. “Job losses will continue in the coming months, even assuming we’ve seen the bottom in the price of crude oil,” he said.
The April tally of upstream petroleum jobs is down 22.4% year-over-year and down 32% from a high of about 306,020 in December 2014. TPI estimates the trough in upstream oil and gas industry 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.
Crude oil production in Texas totaled an estimated 105 million bbl, down 2.5% from the April 2015 level. With oil prices in April averaging $37.51/bbl, the value of Texas-produced crude totaled about $3.94 billion, a decline of 27.7% from the April 2015 level.
Estimated Texas natural gas output was about 710.3 bcf, a year-over-year monthly decline of about 2.6%. With natural gas prices in April averaging $1.76/Mcf, the value of Texas-produced gas declined 31.2% to about $1.25 billion.