Index: Texas oil and natural gas production industry on the mend

Paula Dittrick
Senior Staff Writer
HOUSTON, May 19 -- The Texas oil and natural gas production industry has fully recovered from the 2002 recession and is positioned for growth throughout 2003, indicated a newly released Texas Alliance-Wells Fargo Petroleum Index.

The index reflects numerous Texas oil and gas production and exploration indicators incorporating commodity prices, rig counts, drilling permits, oil and gas completions, production volumes, and industry employment. Statistics include figures from the Baker Hughes Inc. rig count and the Texas Railroad Commission.

The Texas Alliance of Energy Producers organized the index, and Wells Fargo Bank NA sponsored it. The alliance is a statewide organization representing 2,000 members. The alliance was created in 2000 with the merger of the North Texas Oil & Gas Association and the West Central Texas Oil & Gas Association.

The index, released at a Monday news conference, has been under development for a year.

"The index typically has a lot of momentum behind it, too, which means growth should continue for at least the balance of 2003, " said Karr Ingham, an oil industry economist who created the index, which will be released monthly. He is president of the Amarillo, Tex.-based Ingham Economic Reporting.

Price cycles
Price instability is the enemy of both producers and consumers of petroleum products, Ingham said, adding the petroleum index has recorded the nature of cyclical price swings in Texas oil and gas production.

The index is based at 100 in January 1995. The state's petroleum economy experienced strong growth through the fall of 1997 when prices began to retreat and oil patch activity rapidly followed. The index topped at 119.6 in November 1997, and then began a 19-month, 30% slide.

"The oil production industry in Texas has experienced some vicious cycles, particularly in 1998 and early 1999. However, the state's petroleum economy has improved over 50% since June 1999, the lowest point of the index (83.7), and some 10% since the most recent downturn was completed in November 2002," Ingham said. The index for March 2003 was 128.1.

The composite nature of the index proved its value in 2002 as prices recovered and stabilized above $20/bbl on the New York Mercantile Exchange. But drilling activity failed to follow last year despite favorable prices.

"Exactly why this occurred is educated guesswork, but it seems apparent that Texas producers, having become more sophisticated about the nature of price movements realized that prices in 2002 contained something of a 'war premium' and were based less on market realities than on speculation about what might happen in the Middle East," Ingham said.

As strong prices held steady late in 2002, activity began to increase, resulting in the current strong upward move in the index, he said.

Index uses
Timothy H. Murray, Wells Fargo executive vice-president and energy group manager, said he believes the index will be "a more insightful index" than others already available because this one compiles so many elements into its composite number.

"It evaluates the risk of investing in this industry whether it's financial capital or human resources capital," Murray said. He said it would be helpful to bankers, particularly smaller community banks.

Producers also can learn about industry trends from the index, said Roy Pitcock Jr., Texas Alliance chairman. Having a family oil and gas business in Graham, Tex., Pitcock said he particularly was interested in the employment figures and the drilling permit statistics.

More emphasis on gas
Ingham said data covered by the index from 1995 until now shows mostly peaks and valleys with very few level periods that lasted for very long. "A gas-driven economy could be the stabilizing factor," he said. Traditionally, Texas has been very responsive to oil prices, but he said he has seen the industry place a greater emphasis on natural gas in the last 18 months.

Murray said he is bullish on gas prices, adding that Wells Fargo predicts that NYMEX gas prices are unlikely to drop below $4/Mcf anytime this year. Some people are saying gas prices are unlikely to drop below $5/Mcf this year, he added.

"Depend on storage levels, we could see a dilemma this fall," Murray said. A gas supply shortage would drive up prices.

"We could see a pretty dramatic drop in oil prices," Murray acknowledged, adding it depends upon what happens with Iraq production.

Ingham said he expects to see "vibrant" industry activity throughout 2003. He said NYMEX oil prices of $20-25/bbl and gas prices of $4-5/Mcf "create a price environment that is good" for both consumers and producers.
Contact Paula Dittrick at paulad@ogjonline.com


Related Articles

Statoil reduces capital budget by $2 billion following 4Q losses

02/06/2015 Statoil ASA has reduced its organic capital expenditure to $18 billion in 2015 from $20 billion in 2014. The move comes on the heels of a fourth qu...

Oil-price collapse may aggravate producing nations’ other problems

02/05/2015 The recent global crude-oil price plunge could be aggravating underlying problems in Mexico, Colombia, and other Western Hemisphere producing natio...

Oil production begins at Nasr Phase-1 offshore Abu Dhabi

02/05/2015 The first phase of Nasr oil field offshore Abu Dhabi will be producing 22,000 b/d by yearend, according to United Arab Emirates news agency WAM.

Woodside lets FEED contract for Greater Western Flank project

02/05/2015 Woodside Petroleum Ltd. has let a contract to Wood Group Kenny for the front-end engineering and design for the flowline system and associated proc...

Deloitte studies oil supply growth for 2015-16

02/04/2015 A Deloitte MarketPoint analysis suggested large-field projects, each producing more than 25,000 b/d, could bring on 1.835 million b/d in oil supply...

BG’s 2015 budget ‘significantly lower than 2014’

02/03/2015 BG Group plans capital expenditures on a cash basis of $6-7 billion in 2015, a range it says is “significantly lower than 2014” due to “a lower oil...

BP trims capital budget by $4-6 billion

02/03/2015 BP PLC plans an organic capital expenditure of $20 billion in 2015, down from the previous guidance $24-26 billion. Total organic capital expenditu...

IHS sees second-half end of US output surge

02/03/2015

Expectations are moderating about growth of oil production in the US this year.

Gazprom Neft starts shale oil production in western Siberian field

02/03/2015 JSC Gazprom Neft reported start of shale oil production from the Bazhenov formation during tests of two wells in southern Priobskoye field in centr...
White Papers

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...

Accurate Thermo-Fluid Simulation in Real Time Environments

The crux of any task undertaken in System Level Thermo-Fluid Analysis is striking a balance between ti...

6 ways for Energy, Chemical and Oil and Gas Companies to Avert the Impending Workforce Crisis

As many as half of the skilled workers in energy, chemical and oil & gas industries are quickly he...
Sponsored by
Available Webcasts

On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Oil & Gas Journal’s Forecast & Review/Worldwide Pipeline Construction 2015

Fri, Jan 30, 2015

The  Forecast & Review/Worldwide Pipeline Construction 2015 Webcast will address Oil & Gas Journal’s outlooks for the oil market and pipeline construction in a year of turbulence. Based on two annual special reports, the webcast will be presented by OGJ Editor Bob Tippee and OGJ Managing Editor-Technology Chris Smith.
The Forecast & Review portion of the webcast will identify forces underlying the collapse in crude oil prices and assess prospects for changes essential to recovery—all in the context of geopolitical pressures buffeting the market.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected