TAEP: Texas upstream activity may soon plateau

Texas upstream activity increased in May for a sixth straight month, but a plateau could be on the horizon “absent a meaningful increase in crude oil prices,” said Karr Ingham, economist and creator of the Texas Alliance of Energy Producers’ Texas Petro Index (TPI).

Texas upstream activity increased in May for a sixth straight month, but a plateau could be on the horizon “absent a meaningful increase in crude oil prices,” said Karr Ingham, economist and creator of the Texas Alliance of Energy Producers’ Texas Petro Index (TPI).

A composite index based on a comprehensive group of upstream economic indicators, the TPI increased 4.1 points month-over-month in May to 168.9, a year-over-year jump of 9.1 points. All leading TPI indicators registered year-over-year gains in May, with the rig count and well-permitting activity both posting sharp rises.

Before the recent economic downturn, the TPI peaked at a record 313.5 in November 2014, which marked the zenith of an economic expansion that began in December 2009 when the TPI stood at 187.4.

“The industry is clearly in better shape than it was a year ago,” Ingham said. “However, crude oil price sentiments have turned from bullish to bearish in recent weeks as production growth in the US—particularly in Texas—continues to frustrate efforts by [the Organization of Petroleum Exporting Countries] and others to withhold supplies from global oil markets to better balance supply and demand.”

Crude oil prices on the New York Mercantile Exchange for 30-day delivery declined 7% from $48.26/bbl on June 1 to $44.89/bbl on June 30. “Oil markets reflect participants’ sense that sufficient volumes of crude oil are on hand in terms of both production and crude oil in storage,” he said.

Ingham noted that, as a result of the recent oil price drop, the Texas rig count has already stalled over the past several weeks according to data from Baker Hughes Inc. (OGJ Online, June 30, 2017).

May TPI highlights

Texas crude production in May totaled an estimated 103.4 million bbl, up 4.4% from the May 2016 total. With oil prices during the month averaging $45.06/bbl, the value of Texas-produced crude amounted to $4.7 billion, up 8.5% year-over-year.

Texas natural gas output was 675.7 bcf, a year-over-year decline of 3.7%. With gas prices during the month averaging $3.04/Mcf, the value of Texas-produced gas increased 62.4% to more than $2 billion.

The Baker Hughes count of active drilling rigs in Texas averaged 453, up 148.9% year-over-year. Drilling activity in Texas peaked in September 2008 at a monthly average of 946 rigs working before falling to a trough of 329 in June 2009. In the economic expansion that began in December 2009, the statewide average monthly rig count peaked at 932 in May 2012 and June 2012.

The number of original drilling permits issued in May was 1,021, up 68.5% from the May 2016 total.

An estimated average of 207,850 Texans remained on upstream oil and gas industry payrolls in May, representing a 6.5% year-over-year increase but 32% decline from the estimated high of 306,020 in December 2014.

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