Sorry, but the recent notch up in crude oil prices shouldn't be enough to bring joy to the energy patch. Job losses continue to pile up and nearly every indicator points to more pain for the oil and natural gas industry, a Texas economist said.
Karr Ingham, the petroleum economist who compiles and maintains the Texas Petro Index (TPI), a barometer of industry activity and health, said 84,000 oil and gas jobs have been lost in Texas during the 16 consecutive months that the TPI has been in decline.
In addition to the decline in jobs, the drilling rig count, well completions, and drilling permits are all down. Ingham advised against reading too much into the oil price hike.
"First, it may or may not be the real deal; prices increased in part on the hope that some agreement might be reached between producing countries elsewhere in the world on production limitations, and that's a prickly proposition," he said. "And second, price increase now produces a change in other oilfield indicators later, and indeed most other components of the index continued to decline in March."
Ingham said the TPI indicates "more than 84,000 direct industry jobs have been lost through March from peak upstream employment in December. Upstream industry employment in Texas will almost certainly continue to decline for most of the rest of the year; history suggests that employment will trough and begin to increase a good six months after prices reverse course," he said.
West Texas Intermediate (WTI) crude oil averaged $34.58/bbl in March, nearly 28% more than the monthly average of $27.08/bbl in February. Since peaking at 313.3 in October and November 2014, the TPI has declined more than 45%. In November 2014, the combined value of Texas-produced oil and gas was about $9.4 billion.
The value destroyed during the current economic contraction is reflected in the TPI's leading indicators:
The statewide rig count averaged 221 in March, down from a monthly average of 904 in November 2014. (On April 8, the statewide weekly rig count reached another dubious milestone, falling below 200 to 197, the lowest weekly rig count since June 1999.)
The Railroad Commission of Texas (RRC) issued 1,594 drilling permits in first quarter 2016, the lowest first quarter total in the history of the TPI, which is based in January 1995. The RRC issued 5,367 permits in first quarter 2014 and 5,775 permits in first quarter 2013 and 2,949 in the first quarter of 2015 as permits were falling in response to lower crude oil prices.
A composite index based upon a group of upstream economic indicators, the TPI in March was 170.7, 40% lower than in March 2015. Before the current economic downturn, the TPI peaked at a record 313.3 in October and November 2014, which marked the zenith of an economic expansion that began in December 2009, when the TPI stood at 187.4.
In March, crude oil production in Texas totaled an estimated 108.4 million bbl, 4.1% less than in March 2015. With oil prices in March averaging $34.58/bbl, the value of Texas-produced crude oil totaled about $3.75 billion, 25% less than in March 2015.
Estimated Texas March natural gas output was about 721.5 Bcf, a year-over-year monthly decline of about 3.3%. With natural gas prices in March averaging $1.63/Mcf, the value of Texas-produced gas declined 41.5% to nearly $1.18 billion.
The Baker Hughes count of active drilling rigs in Texas averaged 221 in March, compared to 492 in March 2015. 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.
An estimated 222,000 Texans remained on upstream oil and gas industry payrolls, down 27.5% from a high of about 306,020 in December 2014. According to TPI estimates, the trough in upstream oil and gas industry employment in Texas before the expansion ending December 2014 was 184,640 in October 2009. During the previous growth cycle, industry employment peaked at 225,965in October 2008.