Even though crude oil production in Texas continues to increase, drilling activity for future reserves has slowed because of weakness in natural gas prices and instability in crude oil markets, according to the latest Texas Petro Index (TPI).
Among the latest TPI findings: estimated Texas natural gas output totaled more than 575.75 Bcf, a year-over-year monthly decline of nearly 58 Bcf (9.1%). With natural gas prices in September ($2.60/Mcf) trailing prices in September 2011 ($3.93/Mcf) by about 34%, the value of Texas-produced gas declined in September by nearly $1 billion, falling 40% to about $1.494 billion from $2.489 billion in September 2011.
Declines in the drilling rig count and drilling permit applications offset big gains in oil well completions and crude oil production, according to the Texas Alliance of Energy Producers, which produces the TIP, an index of industry activity. The divergent trends combined with price volatility to yield a TPI of 270.9 in September, 6.3% higher than in September 2011, but the TPIs third decline in the past four months.
After increasing at an annual rate of more than 2.5% through the first quarter of 2012 to 272.3 in March, the TPI has reached a plateau. Growth slowed to a rate of 0.2% in April and May. After reaching a high in May of 272.7, the TPI declined 1.0% in June to 271.7 and 0.1% in July to 271.6, before rallying slightly in August to 272.0.
"At mid-year, even though crude prices were recovering from an unexpected $30/bbl dip in the second quarter, we speculated that aggregate activity levels might well cool a bit over the balance of the year," said Karr Ingham, the Texas Alliance of Energy Producers economist who created the TPI and updates it monthly. "Through September, at least, that appears to be the case."
"This plateau is in no way a 'crash,' and there is little expectation of that at current crude prices levels."
Among the leading indicators that oil and gas producers in Texas are dialing down activity, Ingham cited: a statewide monthly average rig count that peaked in May and June at 932 before slipping for three consecutive months to 876 in September; the number of drilling permits issued each month, which has declined year-over-year for three straight months to 17% fewer in September compared to September 2011; total estimated oil and gas industry employment, which appears to have peaked in August before declining in September to a year-over-year growth rate to 5.3% after peaking at about 18% earlier in 2012; and crude oil prices, which have fallen by $12-13/bbl since mid-September.
"Crude oil price volatility likely is feeding producers' concerns about a lack of upside support for crude oil pricing," Ingham said. "It would be unlikely for producers to begin expanding activity again until crude prices indicate that market demand is rising."
Among leading TPI indicators during September were these: estimated crude oil production in Texas totaled more than 47.2 million bbl, about 4.67 million bbl (11%) more than in September 2011. The value of Texas-produced crude oil totaled an estimated $4.32 billion, about $824 million (23.6%) more than in September 2011. TPH indicators also noted that the Baker Hughes Inc. count of active drilling rigs in Texas averaged 876, about 2.3% fewer than in September 2011, when 897 rigs on average were active. 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 addition, TPH found that in September, he number of Texans estimated by the Texas Workforce Commission to be on oil and gas industry payrolls totaled 247,200, about 12,500 (5.3%) more than in September 2011. Total oil and gas industry employment in Texas reached a record 251,600 in June. Industry employment in Texas dropped to a low of 179,200 in October 2009 after reaching a record 222,300 in October 2008, during the previous growth cycle.
A composite index based upon a group of upstream economic indicators, the TPI in September declined to 270.9. In the current economic cycle, the TPI expanded for 29 consecutive months from a low of 188.5 in December 2009 to a high of 272.7 in May. The TPI peaked at 287.8 in October 2008.
Separate data from the Railroad Commission of Texas for September showed the commission issued 1,640 original drilling permits in September compared with 1,984 in September 2011. The September total included 1,441 permits to drill new oil and gas wells, 44 to re-enter existing well bores, and 155 for recompletions. Permits issued last September included 507 oil, 120 gas, 953 oil and gas, 52 injection, two service and six other permits.
Texas preliminary August crude oil production averaged 1.34 million b/d, up from the 983,864 b/d average of August 2011. The preliminary figure for August is about 41.60 million bbl, up from an estimated 30.50 million bbl reported during August 2011.
In September operators reported 657 oil, 178 gas, 34 injection and two other completions compared to 323 oil, 260 gas, 19 injection and one other completion in September 2011. Total well completions for 2012 year to date are 10,836, up from 5,944 recorded during the same period in 2011. Operators reported 687 holes plugged and no dry holes in September compared to 668 holes plugged and no dry holes in September 2011.
Texas oil and gas wells produced 549,882,336 Mcf of gas based upon preliminary production figures for August, up from August 2011 production of 543,112,563 Mcf. Texas preliminary August total gas production averaged 17,738,140 Mcf/d. Texas production last August came from 148,967 oil wells and 94,338 gas wells.
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