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Texas Exploration Continues to Plummet

The drop in natural gas and oil exploration and development across Texas continued in February for the fourth consecutive month, the Texas Petro Index (TPI) reported Thursday.

TPI is a service of the Texas Alliance of Energy Producers, the largest domestic state association of independent oil and gas producers. The index is based upon a group of upstream economic indicators, including commodity prices and rig counts. The index in February declined to 264.7 after peaking in September and October of 2008 at 285.4.

The downward spiral in the state's exploration "stands to be exacerbated by President Barack Obama's recently disclosed plans to repeal long-standing, sensible tax provisions that have helped domestic producers withstand brutal pricing swings for many decades," said economist Karr Ingham, who created the TPI.

"Clearly, Texas producers are stacking rigs and applying for fewer well permits because the recessionary economic environment in the U.S. and around the world has significantly curtailed energy demand and caused commodity prices to come down dramatically," he said. "As a result of those falling prices, and the corresponding drop in production revenue, capital funds available for oil and gas exploration and production activity in the U.S. and in Texas have already been greatly reduced."

If more "investment capital" is taken from domestic producers through "a greatly increased -- and senseless -- tax burden," Ingham said it "would reduce available funding that much more, which would trigger an additional reduction in activity having nothing to do with markets and prices."

The "ultimate pain" of increased taxes on producers, said Ingham, will be felt by consumers "because lower activity leads to a diminished supply. And diminished supply in the face of growing demand is simply a classic recipe for higher prices to consumers."

The Baker Hughes Inc. count of active drilling rigs in Texas dropped to 574 in February, 127 fewer active rigs on average than in January, and 33.7% fewer than in February 2008, TPI noted.

The Texas Railroad Commission year-to-date through February had issued 2,207 drilling permits, down from 3,686 permits in the first two months of 2008. The commission issued 1,264 permits in January, which was down 28% from the same period of 2008. In February permits issued had declined 51% from a year ago.

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