A near 2-year-long contraction of the Texas oil and gas industry economy now dwindles as higher wellhead prices have revived the state’s drilling and permitting activity.
The Texas Alliance of Energy Producers’ Texas Petro Index (TPI), a composite index based upon a comprehensive group of upstream economic indicators, declined for a 23rd consecutive month in October, but by a mere 0.1%.
At 149.1, the index was down 29.8% compared with October 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.
“Crude oil prices this year through October have declined nearly 18% compared to the first 10 months of 2015,” said Karr Ingham, economist and TPI creator. “But the posted price for West Texas Intermediate crude averaged $46.31[/bbl] in October, which was the highest monthly average since July 2015.”
At 96 million bbl, estimated crude oil production in Texas during October was 9% less than in October 2015, and output this year through October was about 6.9% less than in the first 10 months of last year. The value of Texas-produced crude in October was $4.45 billion, down 1.7% from the October 2015 total.
According to the TPI, natural gas prices in Texas this year through October were about 14.3% less on average than in the first 10 months of 2015. But prices in Texas in October averaged $2.91/Mcf—the highest monthly average since January 2015.
At 678.4 bcf, gas output during October was down about 8% compared with the same month in 2015, while gas production in Texas this year through October declined 6.5% compared with the first 10 months of 2015. The value of Texas-produced gas in October increased 15.6% to nearly $1.97 billion.
“At some point, higher prices and more rig activity and drilling-permit applications will begin to slow the decline of oil and gas production,” Ingham said. “However—and this is clearly [the Organization of Petroleum Exporting Countries’] concern—production in Texas and the US has not fallen as far or as fast as was expected, and the increase in drilling activity will potentially slow the rate of decline even more.”
The Baker Hughes Inc. count of active drilling rigs in Texas during October averaged 250 after hitting a weekly nadir of 173 in late May. The number of original drilling permits issued during the month was 855, up 4% from the October 2015 total. The 6,431 permits issued this year through October represented a decline of 29.6% compared with the first 10 months of 2015.
Members of OPEC on Nov. 30 agreed to collectively reduce their production levels by slightly more than 1 million b/d effective Jan. 1 to 32.5 million b/d from the cartel’s October production of 33.6 million b/d (OGJ Online, Nov. 30, 2016). As a result, the New York Mercantile Exchange crude price for January shot above $50/bbl during Dec. 1 trading.
Ingham believes the prospects for stable $50/bbl oil hinge on OPEC’s ability to fully carry out that agreement, the likelihood of which is doubted by some analysts (OGJ Online, Dec. 1, 2016).