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:

“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:

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 to 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 1,342,076 b/d, up from the 983,864 b/d average of August 2011. The preliminary figure for August is 41,604,353 bbl, up from 30,499,770 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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