Alex Mills
By Alex Mills
As 2014 comes to a close, the oil and gas industry in Texas faces many challenges but none bigger than the decline in the price of crude oil and the failure of natural gas prices to rebound.
The Texas Petro Index increased month after month in 2014, setting a new record each month until November when the slide in oil prices began.
The TPI expanded for 58 consecutive months reaching a high of 312.9 in October.
“The decline of the TPI from October to November likely marks the high point of the expansion of the upstream oil and gas economy that began in December 2009 and signals the onset of a significant cyclical contraction,” said Karr Ingham, the economist who created the TPI and updates it monthly. “If October stands as the peak in that cycle–and there is every reason to believe it will–the expansion in Texas upstream oil and gas activity will have lasted 58 months–nearly five full years.”
During that time, Ingham added, the TPI increased about 66 percent from 188.4.
While the statewide rig count in Texas remained strong through November, averaging more than 900 for the month, Ingham noted that 1,508 drilling permits were by Texas operators in November, less than half the record 3.046 permits filings in October, as well as the fewest permits sought in a month since December 2012 and the second-fewest since January 2011.
Ingham pointed out that the Baker Hughes rig count has continued plummet during December, falling to 868 during the week of December 19, 40 rigs fewer than the monthly average in November, “and monthly rig count numbers will continue to decline well into 2015.”
A composite index based upon a comprehensive group of upstream economic indicators, the Texas Petro Index in November was 312.6, 5.8 percent higher than in November 2013. The TPI of 312.9 achieved in October likely represents the peak of an economic expansion that began in December 2009, when the TPI stood at 188.4.
Crude oil production in Texas averaged 3.26 million barrels per day (an estimated 97.8 million barrels), which is 21.1 percent more than in November 2013.
Estimated Texas natural gas output was about 22 billion cubic feet per day (670.5 billion cubic feet so far in 2014), or 0.4 percent increase over the same month in 2013. With natural gas prices in November averaging $3.50/Mcf, the value of Texas-produced gas declined 0.2 percent to about $2.35 billion.
The Baker Hughes count of active drilling rigs in Texas averaged 904, increasing 9 percent from 829 active rigs in November 2013. 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. During the economic expansion that began in December 2009, the statewide average monthly rig count peaked at 932 in May and June 2012.
The number of Texans on oil and gas industry payrolls averaged 308,300, according to statistical methods based upon Texas Workforce Commission estimates, about 10.5 percent more than in November 2013 and nearly 1.3 percent less than the record of 312,200 Texas oil and gas employees recorded in October 2014. Upstream oil and gas industry employment in Texas has increased steadily since falling to a nadir of 179,200 in October 2009. During the previous growth cycle, industry employment peaked at 223,200 in November 2008.
Alex Mills is President of the Texas Alliance of Energy Producers. The opinions expressed are solely of the author.
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