TAEP: Texas upstream economy expanded in December for first time in 2 years

Two consecutive years of economic contraction in the Texas upstream industry ended as 2016 drew to a close, the Texas Alliance of Energy Producers (TAEP) says.

TAEP’s Texas Petro Index (TPI), a composite index based upon a comprehensive group of upstream economic indicators, gained 2.6 points month-over-month in December to 150.6, marking the first monthly increase since it peaked at a record 313.5 in November 2014. However, the index was still down 21.1% from its December 2015 level.

"By the end of 2016, every indicator that makes up the TPI had turned the corner with the exception of natural gas production and the number of oil and gas wells completed," commented Karr Ingham, economist and TPI creator. "Still, even with the $6-to-$8/bbl added to the price of crude oil by the [Organization of Petroleum Exporting Countries’] plan announced in late-November to remove 1.2 million b/d from global crude oil markets, oil prices are still less than half what they were in advance of the downturn.

"So, while there is little sense the Texas oil and gas exploration and production economy in 2017 will recoup all that has been lost over the course of the contraction, the industry is moving into the new year with a sense of optimism and resurgence for the first time in 3 years," Ingham concluded.

December indicators

Crude oil production in Texas during December totaled 98.5 million bbl, down 5.1% from the December 2015 total. With oil prices in December averaging $48.69/bbl, the value of Texas-produced crude amounted to $4.8 billion, up 36.8% from the December 2015 total.

Texas natural gas output was an estimated 649.7 bcf, a year-over-year decline of 9.5%. With natural gas prices in December averaging $3.46/Mcf, the value of Texas-produced gas increased 63.8% year-over-year to $2.24 billion.

The Baker Hughes Inc. count of active drilling rigs in Texas averaged 310, down 4.3% year-over-year. 

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 by the Texas Railroad Commission (TRC) was 1,009, up 38.8% year-over-year. 

Based upon revised quarterly data from the Texas Workforce Commission, the estimated average of Texans on upstream payrolls during December was 205,300, down 11.6% year-over-year and down 32.9% from the December 2014 average. 

According to TPI estimates, the trough of upstream 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. 

2016 highlights

Crude production in Texas in 2016 totaled 1.177 billion bbl, down 6.3% from the 2015 total, ending a string of 8 consecutive years in which statewide production increased. With crude wellhead prices declining 12.2% to average $39.84/bbl, the estimated value of Texas-produced crude declined 17.8% to $46.8 billion.

With natural gas prices declining 6.3% to average $2.39/Mcf, the estimated value of Texas-produced gas decreased 13.6% to $19.4 billion.

The statewide working rig count averaged 237, down 44.8% from the 2015 average. The TRC issued 8,113 drilling permits, down 23.1% from the 2015 total.

About 209,455 Texans on average were employed in the oil and gas production, drilling, and service sectors, representing a 19% decline from the 2015 average.

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