The Texas Petro Index (TPI) was down again in October -- its 23rd consecutive month of decline -- however, the drop was only 0.1 point as higher prices at the wellhead sparked drilling and permitting activity, according to the economist who compiles the monthly barometer of industry health in the Lone Star State.
"Crude oil prices this year through October have declined nearly 18% (compared to the first 10 months of 2015)," said economist Karr Ingham. "But the posted price for West Texas Intermediate crude averaged $46.31/bbl in October, which was the highest monthly average since July 2015."
Similarly, according to the TPI, natural gas prices in Texas this year through October were about 14.3% less on average than in the first 10 months of 2015. But natural gas prices in Texas in October averaged $2.91/Mcf, the highest monthly average since January 2015.
In contrast, estimated (and subject to future revision) crude oil production in Texas during October was about 9% less than in October 2015; crude output this year through October was about 6.9% less than in the first 10 months of last year. Natural gas output in Texas during October was down about 8% compared to the same month in 2015, while gas production in Texas this year through October declined about 6.5% compared to the first 10 months of 2015.
"At some point, higher prices and more rig activity and drilling-permit applications will begin to slow the decline of oil and gas production," Ingham said. "However -- and this is clearly OPEC's concern -- production in Texas and the U.S. has not fallen as far or as fast as was expected, and the increase in drilling activity will potentially slow the rate of decline even more."
"So, in the near term, it appears prospects for $50/bbl oil will hinge on the ability of OPEC to agree on production cuts and the ability of its members to stick to that agreement should it materialize."
A composite index based upon a comprehensive group of upstream economic indicators, the TPI in October was 149.1, 29.8% lower than in October 2015. Before the current economic downturn, the TPI peaked at a record 313.5 in November 2014, which marked the zenith of an economic expansion that began in December 2009, when the TPI stood at 187.4.
Estimated crude oil production in Texas totaled about 96 million bbl, 9% less than in October 2015. With oil prices in October averaging $46.31/bbl, the value of Texas-produced crude oil came to nearly $4.45 billion, 1.7% less than in October 2015.
Estimated Texas natural gas output surpassed 678.4 Bcf, a year-over-year monthly decline of about 8%. With natural gas prices in October averaging $2.91/Mcf, the value of Texas-produced gas increased about 15.6% to nearly $1.97 billion.
The Baker Hughes count of active drilling rigs in Texas averaged 250 during the month, 28.4% fewer units than in October 2015 when an average of 349 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 October was 855, about 4% more than the 822 permits issued in October 2015. The number of permits issued this year through October, 6,431, represents a decline of 29.6% compared to the first 10 months of 2015.
An estimated 204,600 Texans remained on upstream oil and gas industry payrolls, based upon revised quarterly data from the Texas Workforce Commission, about 14.2% fewer than in October 2015 and about 33% 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.