Crude oil prices in Texas averaged $45.19/bbl in June, marking the fourth straight monthly increase since the average monthly price fell to a low of $27.08/bbl in February.
As a result, the average statewide rig count during the month was higher than the previous month’s count for the first time in 2 years, and the 656 drilling permits granted was 28% more than the low ebb in February. The rate of industry job-loss slowed in June as well, with an estimated 900 shed by upstream firms.
However, despite the signs of recovery, the Texas Alliance of Energy Producers’ latest Texas Petro Index (TPI) indicates the tough times haven’t ended based on its analysis of the first 6 months of industry activity.
“Even with deep declines in activity levels, oil production in Texas has been slow to respond,” explained Karr Ingham, economist and TPI creator. “In fact, crude output in Texas this year through June declined only about 5% compared to the first 6 months of 2015.”
A composite index based upon a comprehensive group of upstream economic indicators, the TPI in June declined for the 19th straight month to 155.8, down 39% from its June 2015 level and less than half the value of the peak TPI of 313.4, which occurred in November 2014.
The index shows that production has been slow to respond to lower wellhead prices, with statewide crude output in 2015—the year after prices began their dive from more than $100/bbl in summer 2014—increased 11.5% compared with its 2014 level. Production in every month of 2015 was up compared with the same month a year earlier, and the first year-over-year production decline measured by the TPI didn’t occur until January.
“Virtually nothing in this cycle that would correct the current contraction has occurred quickly or within the time frames that many had forecast,” Ingham said. “The sharp price decline and resulting industry downturn was the direct result of market imbalance and rising crude oil supplies.”
He said, “Concerns about these very things remain in place, and there is presently no great sense that the difference will be made up on the demand side. Hence, while the end may be near in terms of TPI decline, there is every chance that the recovery ahead will be frustratingly slow.”
June index indicators
Crude production in Texas during June totaled an estimated 96.3 million bbl, down 7.2% from the June 2015 estimate. The value of Texas-produced crude totaled $4.35 billion, down 25.5% year-over-year.
Estimated Texas natural gas output was 697.4 bcf, down 3.2% from the June 2015 number. With natural gas prices in June averaging $2.41/Mcf, the value of Texas-produced gas declined 13.2% to $1.68 billion.
The Baker Hughes Inc. count of active drilling rigs in Texas averaged 185 compared with 363 in June 2015. Drilling activity in the state 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.
The number of Texans on upstream payrolls averaged an estimated 204,100, down 20.9% year-over-year, according to statistical methods based upon the Texas Workforce Commission’s Quarterly Census of Employment and Wages.
Calculations based on TWC’s Current Employment Statistics (CES) data show a record 306,000 Texans held upstream 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.