Dramatic upward revisions of crude oil production in Texas combined in August with strong crude prices and strengthening natural gas prices to propel the Texas Petro Index to a record high for the second straight month and lift the estimated number of workers on oil and gas company payrolls to a new high as well.
But the TPI also revealed that state regulators issued only 1606 drilling permits, the fewest during any August since 2009, when oil and gas activity was in sharp decline. Fewer permits to drill could exert downward pressure on upstream oil and gas activity in the coming months.
“The Texas Petro Index continued its march into record territory in August, rising to 289.8,” said Karr Ingham, the economist who created the TPI and updates it monthly.
That eclipsed the old record, set in July, which itself was revised upward by Ingham to 288.2 from 287.7 due to ongoing, upward revisions of Texas oil production since the July 2013 TPI was released less than 30 days ago.
Also contributing to the record TPI in August were natural gas prices. “While still lower than during the gas-driven expansion of Texas E&P activity from 2003 to 2009, they were solidly improved compared to year-ago levels and, thus, are providing upside support to the TPI rather than acting as a drag,” Ingham said.
In addition to the sharp decline in the number of drilling permits granted, drilling activity in August was slightly lower than in August 2012, exerting downward pressure on the TPI. However, the statewide rig count this year has climbed slowly but steadily after declining in the second half of 2012. “Each working rig represents considerable associated economic activity in terms of employment, services provided to the rig and to the well, lease and royalty payments, and so on,” Ingham explained. “However, the historic relationship between drilling permits and rig activity is evolving because technological advances enable several wells to be drilled from the same pad with the same rig.
“Nevertheless, the rig count remains an important upstream economic indicator, however, simply because it clearly shows a positive correlation with price - when prices go up, so does the rig count, and when prices go down, the rig count does the same.
“Ultimately,” Ingham said, “crude oil pricing will determine the direction of the TPI over the coming months; if prices remain above US$ 100/bbl or even in the US$ 90 - US$ 95/bbl range - the rig count will continue its steady improvement, drilling permits will stabilise or increase, and the industry will continue to add jobs. And at this point, all of that seems very likely.”
A composite index based upon a comprehensive group of upstream economic indicators, the Texas Petro Index in August 2013 increased to a record 289.8, up 4.6% compared to the same month in 2012. Before the current economic expansion, the TPI’s previous all-time high of 287.6 occurred in September and October 2008, after which the TPI declined to 188.5 in December 2009 before embarking upon the current growth cycle.
Among TPI indicators during July:
Crude oil production in Texas totaled an estimated 71.1 million bbls, nearly 10.2 million bbls (16.7%) more than in August 2012. Crude oil wellhead prices averaged US$ 103.09/bbl, about 13.7% more than in August 2012. Production gains and higher wellhead prices combined to boost the value of Texas-produced crude oil by about 32.8%, to nearly US$ 7.33 billion.
Estimated Texas natural gas output was more than 645.3 billion ft3, a year-over-year monthly decline of 5.8%. Natural gas prices averaged US$ 3.48 per thousand cubic feet, about 14.1% more than in August 2012. Higher wellhead prices more than offset the production decline to boost the value of Texas-produced gas to more than US$ 2.25 billion, 7.5% more than in August 2012.
The Baker Hughes count of active drilling rigs in Texas averaged 848, 5.9% fewer than in August 2012, when 901 rigs on average were operating. 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.
The number of Texans estimated to be on oil and gas industry payrolls reached a record 282 700, according to statistical methods based upon Texas Workforce Commission estimates revised in March. Industry employment in Texas dropped to a low of 179 200 in October 2009 after reaching a high of 223 200 in November 2008 during the previous growth cycle.
Adapted from a press release by David Bizley
Read the article online at: https://www.oilfieldtechnology.com/exploration/02102013/texas_upstream_oil_and_gas_economy_marches_to_new_high/