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Texas Drilling, Employment Continue to Falter

Drilling activity in Texas declined steadily through April, reflecting "very weak natural gas markets and defying a crude price rally," according to the Texas Petro Index (TPI), which was issued on Friday. Employment in the state's exploration and production (E&P) industry has dropped to its lowest level since January 2008.

The TPI, a composite index based upon a group of upstream economic indicators, dropped more than 5% in April to 249.0, which marks the sixth consecutive monthly decline since peaking in September and October 2008 at 285.4.

"The Texas oil and gas industry remains in a cost-cutting mode, idling rigs, reducing capital spending and laying off employees as economic contraction continues," said Karr Ingham, who created the TPI for the Texas Alliance of Energy Producers. The oil price recovery, he said, is benefiting producers in some regions of the state.

"But make no mistake about it," said the economist. "Texas is a natural gas state, in terms of the primary E&P focus, with 80% of the rigs still actively drilling for natural gas. As long as natural gas prices remain at current levels, producers in a lot of Texas gas plays will be unable to turn a profit on new gas wells."

According to the latest TPI indicators:

If wellhead prices were to double from the current prices of $3-4/Mcf, "gas producers across Texas would be able to recover their finding and development costs," said Ingham. "Sustained gas prices of $6/Mcf or more would drive a turnaround in gas-related E&P activity in the state."

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