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Texas Index Charts Another Record as Success Weighs on Oil Prices

The Texas Petro Index (TPI), a barometer of oil and gas activity in the Lone Star State, set another record in September, mainly on the back of robust oil production. But while natural gas production declines, stronger prices more than compensate.

The economist who compiles data for the index warned producers that crude prices are coming down due to their success in the oil fields.

"Texas oil and gas producers respond very impressively to market signals," said economist Karr Ingham. "Over the past several years, the industry has responded to higher crude oil prices by driving up production at a rate that borders on the miraculous."

The TPI for September is a record 292.2, up 4.6% compared to the same month in 2012, and the third consecutive monthly high this year (see Shale Daily,Oct. 3).

Estimated September Texas natural gas output was more than 635.6 Bcf, a year-over-year monthly decline of 4%. Natural gas prices averaged $3.45/Mcf, about 32.9% more than in September 2012. Higher wellhead prices more than offset the production decline to boost the value of Texas-produced gas to nearly $2.2 billion, 27.6% more than in September 2012.

According to Railroad Commission of Texas (RRC) estimates, Texas producers recovered more than 69.9 million bbl of oil during September, 17% more than in September 2012. But crude output has grown even faster than current numbers would indicate, Ingham said. In the 12 months since its initial estimate, the commission revised September 2012 crude output upward by more than 12.5 million bbl to about 59.8 million bbl, an increase of about 26.5%.

Ongoing, upward revisions of statewide crude output have been substantial enough to offset declines this year in crude oil prices, the rig count and drilling permitting activity. Adjustments of crude production in just one month were enough to lift the August 2013 TPI from 289.8, the previous record, to 290.2, Ingham said.

"Crude oil markets in Texas are functioning fabulously and prices are coming down," Ingham said. "In the next few months and in 2014, crude oil producers must be wary. The great success they've achieved in cracking open new sources of supply and raising production is supposed to result in lower prices and, in fact, that may well be the case."

The TPI is a composite index based upon a group of upstream economic indicators. 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 its current growth cycle.

In September, crude oil production in Texas totaled an estimated 69.9 million bbl, nearly 12.5 million bbl (17%) more than in September 2012. Crude oil wellhead prices averaged $102.90/bbl, about 12.6% more than in September 2012. Production gains and higher wellhead prices combined to boost the value of Texas-produced crude oil by about 31.7%, to nearly $7.2 billion.

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