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Still Waiting on Texas Petro Index Turnaround

September was the 22nd consecutive month that saw a decline in the Texas Petro Index (TPI), a barometer of upstream oil and natural gas activity in the Lone Star State. No one in the energy patch is going to call this recovery a quick one.

"I was hoping the TPI was going to post its first monthly increase in September," said Karr Ingham, the economist who created the TPI and updates it monthly. "But the upstream recovery remains a slow process."

While there were some signs of stability among indicators used to compile the TPI, that wasn't enough to arrest its decline. The TPI fell to 149.0. Since peaking in November 2014 at 313.5, the TPI through September has lost 52.5% of its value.

Ingham said that absent a rapid expansion of demand that would help absorb the current crude oil oversupply, any solution to market imbalance must come from the supply side. With OPEC members and Russia apparently unable to agree on a plan to curtail oil output, U.S. production needs to continue declining to provide upside support to crude oil prices, he said.

"The response of upstream investment to current prices and cost structures will set the stage for a sustained recovery at some point in the future," Ingham said. "We may want the recovery to be faster, but that probably isn't the best outcome right now."

During September, crude oil production in Texas totaled more than 92.6 million bbl, 9.6% less than in September 2015. With oil prices in September averaging $41.48/bbl, the value of Texas-produced crude surpassed $3.84 billion, 10.5% less than in September 2015.

Estimated Texas natural gas output surpassed 663.8 Bcf, a year-over-year monthly decline of about 8.2%. With natural gas prices in September averaging $2.88/Mcf, the value of Texas-produced gas declined 2% to nearly $1.91 billion.

The Baker Hughes Inc. count of active drilling rigs in Texas averaged 244, 33.5% fewer units than in September 2015 when an average of 367 rigs were working. 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 in September was 746, 17.7% fewer than the 906 permits issued in September 2015. The number of permits issued this year through September, 5,576, is down 34.9% compared to the first nine months of 2015

An estimated 203,525 Texans remained on upstream oil and gas industry payrolls, 16.6% fewer than in September 2015 and nearly 33.5% fewer than the estimated high of about 306,020 in December 2014. According to TPI estimates, the trough of upstream oil and gas 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.

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