Yahoo Finance Texas Petro Index Midyear Update: Oil and Gas Recovery Slow but Steady
Upswing in monthly measure of Texas’ upstream energy economy signals a new cycle of expansion in statewide exploration and production activity
Texas Petro Index, June 2021
Austin, Texas, July 27, 2021 (GLOBE NEWSWIRE) -- Midway through 2021, the Texas upstream oil and gas economy is on the mend following a double barrel contraction in 2019 and 2020, which took the rig count to historic low levels and eliminated tens of thousands of industry jobs. The Texas Alliance of Energy Producers Texas Petro Index (TPI) has now increased for three straight months, and four of the last five months, signaling a new cycle of expansion in statewide exploration and production (E&P) activity.
The TPI improved to 147.2 in June, up from 143.1 in May, but remains down by 7.2% compared to the June 2020 index of 158.6.
The Texas Petro Index reached its most recent cyclical peak of 213.6 in February 2019 and remains down by some 31% through June compared to that level. From peak to trough, the contraction lasted 23 months February 2019 through January 2021, over which time the Texas Petro Index declined by 38.6%. The TPI, based at 100.0 in January 1995, achieved its all-time high of 314.0 in November 2014.
The first leg of the downturn began late in the first quarter 2019 as lower crude oil prices compared to 2018 pushed activity levels downward for the balance of the year and into the first quarter 2020. The COVID-related declines began in March 2020 with much steeper monthly declines in the Texas Petro Index, according to Alliance Petroleum Economist Karr Ingham, who created the TPI and maintains it monthly.
“The 2019 contraction was no minor event, with significant declines in activity and about 20,400 jobs lost in the Texas upstream sector,” said Ingham. “But that paled in comparison to the COVID decline in 2020 during which the statewide rig count dropped to unprecedented lows and another 61,000 Texas oil and gas E&P jobs were lost between February and September.”
After falling well below $10 per barrel in April 2020, crude oil prices began to recover in the second half of the month but did not return to early 2020 levels until January-February 2021. The statewide rig count, having reached 533 on average in the fourth quarter 2018, ultimately declined to an average of 105 in August, and a weekly low of 100, the lowest levels on record since Baker Hughes began counting rigs in 1944.
Even though prices and other measures of activity were in decline in 2019, Texas crude oil production continued to increase through March 2020, eventually peaking at a record 5.4 million barrels per day. Over the next two months, however, production declined by more than 1 million barrels per day before beginning to slowly increase once again in June of last year.
Texas upstream oil and gas indicators through June 2021 tell the story of the slow but steady recovery now underway:
Posted West Texas Intermediate (WTI) crude oil prices averaged $67.39 in June up from a low of $14.68 in April last year and the highest since November 2014.
Natural gas prices averaged $2.99/mmbtu in June compared to $1.07 in March 2020, and the highest since January 2018, with the exception of spiking natural gas prices in February 2021 in response to Winter Storm Uri.
The statewide rig count improved to 219 in June compared to 105 on average in May 2020.
Just over 4,000 original drilling permits were issued through June compared to 3,793 in the first six months of 2020. By contrast, nearly 7,200 permits were issued January-June 2018 before the numbers began to decline in 2019.
Estimated crude oil production in Texas averaged 4.82 million barrels per day in June. That means about 418 million bpd have been added back to statewide production of the over 1 million barrels per day lost from March to May 2020.
Direct upstream employment in Texas (operating and producing jobs, oilfield service jobs, and drilling company jobs) climbed back above 160,000 in June. That suggests the addition of about 14,200 of the nearly 81,500 jobs lost over the course of the entire contraction.
The slow pace of the recovery thus far is especially evident in the rig count and industry employment. Even with $70-plus crude oil, the rig count seems to be increasing at a snail’s pace, and the same is true of upstream oil and gas employment. But, according to Ingham, operators have been able to add back lost production from last year without adding rigs in large chunks and drilling new wells.
First, operators have simply restarted wells that were shut down during COVID. Additionally, wells that were previously drilled but not completed are now being completed and brought online. The DUC (drilled but uncompleted) well inventory has dropped by nearly 35% over the last year in the Permian Basin and about 31% in the Eagle Ford.
Ingham also points to a cautious recovery from an unprecedented downturn in cause and scope, along with the oft-discussed capital discipline on the part of operators and changing investor sentiment that focuses more on return on investment as opposed to rapid expansion of reserves with a potential future payoff.
Still, the nature of production increases so far is temporary, and operators will eventually turn to higher rates of drilling to meet the demand implied by rising prices. That in turn will result in increased labor demand in the upstream sector in Texas.
“Texas oil and gas producers understand the message behind higher prices for crude oil and natural gas, and that is to provide additional product to the marketplace if possible. Texas and U.S. independent oil and gas producers have proven time and time again that it is possible,” said Ingham. “If prices continue to climb and operators do not respond by drilling more wells and pushing the rig count upward, it would be the first time ever that that would be the case.”
For that reason, even in the current negative political climate, the Texas upstream oil and gas economy should reflect continued improvement with greater momentum in the second half of 2021.
About the Texas Petro Index
The Texas Petro Index (TPI) is a monthly measure of growth rates and cycles in the Texas upstream oil and gas economy. The TPI is calculated based on a comprehensive group of exploration and production (E&P) indicators, which include crude oil and natural gas wellhead prices, rig count, drilling permits, well completions, volume and value of Texas crude oil and natural gas production, and industry E&P employment. Karr Ingham, Petroleum Economist and Executive Vice President of the Texas Alliance of Energy Producers, created the TPI in January 1995 (based at 100.0) and releases it monthly. For more information, visit https://texasalliance.org/texas-petro-index/.
About the Texas Alliance of Energy Producers
Founded in 1930, the Texas Alliance of Energy Producers is the most knowledgeable and effective statewide oil and gas association in the nation. Serving nearly 3,000 members, the Alliance provides a voice for sound U.S. energy policy. These individuals and organizations – from small independents to publicly traded companies – are the driving force behind the U.S. energy renaissance. For more information, visit https://www.texasalliance.org/ and @TexasAllianceEP.
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