The agreement among major crude oil exporters to extend production cuts through next year has had the unintended consequence of breathing new life into the revival of upstream oil and gas activity in Texas, according to Karr Ingham, the creator of the Texas Petro Index, which increased for the 11th consecutive month in October to 183.2.
“According to the TPI, the decision by OPEC and other big oil exporting countries to hold the line on production cuts through yearend 2018 helped crude oil prices break out of the $45-per-barrel range, where they had been stuck for several months, to average more than $48/bbl in October and to reach $51/bbl by the month’s end,” Ingham said. “Overall, crude oil markets have generally tightened in recent months because of those cuts, so any other decision probably would have lowered crude prices.”
Higher crude prices sustained an expansion of the upstream oil and gas economy in Texas in which the TPI has increased to183.2 in October, the 11th straight monthly gain since it dipped to a nadir of 148.2 in November 2016.
Ingham said the rebound of the TPI is reflected in upstream oil and gas employment, which has increased by 34,700 workers in the past 13 months. Given current market conditions, he said the continuation of production cuts by OPEC and other big exporters could encourage Texas producers to continue driving upstream activity.
“After stalling out and declining a bit since July, the statewide rig count rebounded in the last week of October in response to rising oil prices, and it has been on the rise ever since,” Ingham said. “After dropping off in September, the number of drilling permits issued improved slightly in October, and permit numbers very likely will continue to improve in the coming months.
“Crude oil production generally is on the rise in Texas.” he said, “and production will continue to increase in Texas and the U.S. thanks to buyers that have posted West Texas Intermediate prices well north of $50/bbl.”
A composite index based upon a comprehensive group of upstream economic indicators, the Texas Petro Index in October increased to 183.2 from 181.4 in September and 149.0 in October 2016. 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.
TPI Highlights in October:
- Estimated crude oil production in Texas totaled more than 107.5 million barrels, 11.1 percent more than in October 2016. With oil prices in October averaging $48.06/bbl, the value of Texas-produced crude oil amounted to nearly $5.17 billion, about 15.3 percent more than in October 2016.
- Texas natural gas output declined 3.1 percent compared to October 2016 to more than 655.8 billion cubic feet. With natural gas prices in October averaging $2.72/Mcf, the value of Texas-produced gas decreased 9.4 percent to about $1.78 billion.
- The Baker Hughes count of active drilling rigs in Texas averaged 442 units, 76.8 percent more units than in October 2016 when an average of 250 rigs were working. Drilling activity in Texas peaked in September 2008 at a monthly average of 946 rigs 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 was 997, 16.6 percent more than the 855 permits issued in October 2016.
- An estimated average of 226,725 Texans remained on upstream oil and gas industry payrolls, about 17.5 percent more than the revised average of 192,925 in October 2016, but about 23.2 percent fewer than the estimated high of 295,168 in December 2014. According to revised TPI estimates, the trough of upstream oil and gas employment in Texas before the expansion ending December 2014 was 168,711 in October 2009. During the previous growth cycle, industry employment peaked at 211,127 in October 2008.
ABOUT the TPI: The Texas Petro Index is a service of the Texas Alliance of Energy Producers, the nation’s largest state association of independent oil and gas producers.