Texas Petro Index sets record for 7th straight month

The Texas Petro Index (TPI), a composite index based on a comprehensive group of upstream economic indicators released by the Texas Alliance of Energy Producers (TAEP), continued to produce record highs last month amid an “economic tsunami.”

The June index reached 308.4, up 7.4% compared with June 2013. It was the seventh straight monthly increase and 18th rise in the past 19 months.

Crude production in Texas totaled 89.75 million bbl, 24.2% higher than the previous June. The value of Texas-produced crude oil totaled more than $9.1 billion, 37.1% more than the previous June. During this year’s first half, producers recovered 519.1 million bbl of oil, 23% more than during first-half 2013.

“We are producing more crude oil than at any point since at least the late 1970s,” Karr Ingham, economist and TPI creator, who added that Texas in on pace to surpass an all-time high in production in 2016. The US Energy Information Administration recently projected the country’s oil production in 2015 to reach its highest level since 1972 (OGJ Online, June 10, 2014).

During the current expansion that started in December 2009, the volume of crude produced in Texas has increased 180%, and the TPI has increased 64%.

First-half crude wellhead prices increased 7.3% to average $97.35/bbl, boosting the value of Texas-produced crude by 32.4% to $50.57 billion.

“At yearend 2013, the prevailing expectation was that crude oil prices could soften modestly in 2014, and that might have been the case absent the tensions between Russia and the Ukraine and events in Iraq,” Ingham said.

He noted, however, that crude prices have risen thus far for the year, averaging more than $100/bbl in June. “The effect of those price increases has been to bring about an uptick of activity in the Texas E&P sector.”

E&P activity, workforce

Baker Hughes Inc.’s survey of active drilling rigs in Texas for June totaled 891, up 50 units from June 2013. During this year’s first half, the statewide working rig count averaged 869, a 4.2% year-over-year increase. During the current economic expansion, the statewide average monthly rig count peaked at 932 in May and June 2012.

The Texas Railroad Commission issued 11,860 drilling permits during the first half, compared with 11,578 permits issued in last year’s. Since the beginning of the current expansion, the rig count has increased by more than 170%, and the number of drilling permits issued has more than doubled.

The number of Texans on oil and gas industry payrolls averaged a record 297,800 in June, 6.2% more than in June 2013, according to statistical methods based upon Texas Workforce Commission estimates.

During the first half, 290,200 Texans on average were employed in the oil and gas production, drilling, and service sectors, up 5.7% compared with first-half 2013.

Industry employment in Texas has increased 66%, about 118,600 workers, since bottoming out at 179,200 in October 2009. During the previous growth cycle, industry employment peaked at 223,200 in November 2008.

Ingham said “oil and gas employment is the engine behind statewide economic growth,” and the state is shielded from a possible downturn in the industry because the economy is so diversified.

“All these signs point to continued petroleum-industry expansion in 2014 and crude oil pricing levels high enough to sustain that expansion,” Ingham said. “In addition, the risk premium that has been propping up prices is quite likely to remain in place, if not escalate, which also supports continued industry economic expansion in the coming months.”

Before the current economic expansion, the TPI’s previous all-time high of 287.6 occurred in September and October 2008.

Natural gas production

Texas natural gas output in June was 680.5 bcf, a year-over-year monthly increase of 0.4%. With natural gas prices in June averaging $4.36/Mcf, the value of Texas-produced gas increased 5.7% to $2.97 billion.

During the first half, natural gas wellhead prices increased 25.7% to $4.62/Mcf and gas production increased 0.3% to 4.1 tcf, boosting the estimated value of Texas-produced natural gas to more than $18.7 billion.

Natural gas’s diminishing share of the market has come with the increased focus on oil exploration and production. Today, 92% of active rigs are drilling for oil.

The other expansion that has occurred since the turn of the millennium, during 2003-08, was principally driven by natural gas, with 80% of rigs drilling for gas at the time. Despite the rapid decrease in rigs targeting gas, production has modestly risen because it is being produced with oil.

Ingham noted that the move away from gas has been driven by price, and the focus will remain on oil for as long as WTI prices hover around $100/bbl. A rebound would have to be facilitated by economic growth spurring gas demand and relaxed export restrictions, he said, at which point, TPI numbers would reach an even higher stratosphere.

Contact Matthew Zborowski at matthewz@ogjonline.com.

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