The Texas Petro Index (TPI), a barometer of oil/natural gas upstream industry health in the Lone Star state, charted its second consecutive increase in January, a sign that growth and recovery have begun.

“The components of the Texas Petro Index continue to register mixed results as the transition from contraction to expansion plays out,” said Karr Ingham, the economist who created the TPI and updates it each month. “Crude oil and natural gas prices, the rig count, the number of drilling permits issued, and the value of oil and gas produced in Texas all registered year-over-year increases in January, while oil- and gas-well completions, the volume of oil and gas produced, and upstream oil and gas employment continued to decline compared to levels a year ago.

“The TPI shows the upstream oil and gas economy in Texas continued expanding in January, partly because the agreement last year by large oil-producing countries to reduce global oil supplies created a bump of $6-8/bbl on wellhead prices, which had a positive effect on activity levels in Texas.

“But not only higher wellhead prices have been driving the expansion; it also has been lower costs,” Ingham said.

Ingham said that the longer Texas producers sustain the current rally, the greater upward pressure will become on oilfield service costs.

“The expansion is in its infancy and 2017 will very likely be a year of growth and recovery in the Texas upstream oil and gas economy,” he said. “But at some point, absent another surge in the price of crude oil, price levels and oilfield service costs will conspire to put a bit of a lid on activity growth.”

In January the TPI was 153.3, up from 150.6 in December and 148.0 in November. The January 2017 TPI was about 16% less than in January 2016 and about 51% less than the peak TPI of 313.5 calculated in November 2014.

In January estimated crude oil production in Texas totaled about 99.5 million bbl, 4.5% less than in January 2016. With oil prices in January averaging $49.25/bbl, the value of Texas-produced crude oil amounted about $4.9 billion, 63.5% more than in January 2016.

Texas natural gas output surpassed an estimate 639.6 Bcf, a year-over-year decline of about 10%. With natural gas prices in January averaging $3.19/Mcf, the value of Texas-produced gas increased about 29.7% to more than $2 billion.

The Baker Hughes Inc. count of active drilling rigs in Texas averaged 336 in January, 10.2% more units than in January 2016 when an average of 305 rigs were working. The January average was the highest since November 2015 when the rig count was still in free fall on the way down, Ingham said. The January average was 85% higher than the nadir of 182 posted in May 2016.

The number of original drilling permits issued in January was 956, about 87.5% more than the 510 permits issued in January 2016.

An estimated average of 206,100 Texans remained on upstream oil and gas industry payrolls, based upon revised quarterly data from the Texas Workforce Commission (TWC), about 10.2% fewer than in January 2016 and about 32.65% fewer than the estimated high of 306,020 in December 2014. TWC is expected to release revised data this month.