Texas producers boosted crude oil production for the third straight year in 2012, lifting statewide output by nearly 100 million bbl to 604 million bbl, according to the year-end report issued by the economist who compiles the monthly Texas Petro Index.

The estimated 2012 annual production volume is the highest statewide total since 1992, when producers recovered 613 million bbl. Last year, average wellhead prices finished the year at $84.73/bbl after peaking in March at nearly $103/bbl.

The Petro Index — an indicator of oil and gas industry activity in the Lone Star State — in December was 270. That compares with an all-time high of 287.8 in October 2008 and an all-time low of 83.8 in June 1999. The index has been on a climb since its last trough in December 2009 when it was 188.5.

“This is a crude oil-driven expansion,” said economist Karr Ingham during a presentation to reporters and board members of the Texas Alliance of Energy Producers in Houston Monday. “…The tables have turned, and Texas has returned to its crude oil roots.”

Carrizo Oil & Gas Inc. is among the many producers that have shifted their focus to oil. Earlier this month the company said the Eagle Ford Shale would get 77% of its 2013 drilling budget (see Shale Daily, Jan. 16).

Natural gas prices have been a “train wreck, by and large,” Ingham said. However, “Texas is at the center of a national energy renaissance…Thank goodness for the Permian [Basin] and the Eagle Ford.”

In 2011, Texas oil production was 509 million bbl, which was an increase from 425.8 million bbl in 2010.

Declining crude oil prices after the first quarter of 2012 served as the catalyst for a slight decline in aggregate petroleum industry activity, evidenced by a modest retreat in the rig count and applications for drilling permits, Ingham said.

Texas producers last year continued to focus on oil over natural gas, with 80% of active drilling rigs targeting oil-prone prospects. According to the Texas Petro Index, crude oil prices averaged $90.58/bbl during 2012, down 1% from $91.49/bbl in 2011. Meanwhile, natural gas prices averaged $2.73/Mcf in 2012, down about 31.5% from $3.99/Mcf in 2011.

Asked what natural gas prices would have to be to entice producers away from crude oil activity and back to drilling natural gas wells, Ingham pondered a bit over the $5.00/Mcf level, suggesting that something a bit higher might be needed. However, he said, gas prices need to stay low for a while in order to continue to incentivise demand-creation activity such as liquefied natural gas export development.

After all, increasing demand lifts prices, and higher prices are what brought Texas and U.S. oil production back from the brink.

“It wasn’t so long ago that the U.S. and Texas were in the throes of a brutal, unflinching production decline that was thought to be permanent,” Ingham said. “This dramatic reversal in U.S. and Texas crude oil production simply would not have happened absent the sharp rise in price from the $20-30 [per barrel] range 10 years ago to the $100 range today.”