King crude reigns over record upstream oil and gas economy
HOUSTON -- With Texas crude oil output increasing too quickly for state regulators to track, the Texas Petro Index (TPI) set another new high in September, brushing aside signs that the state’s upstream oil and gas economy could be approaching a plateau, to reach a record 292.2.
“Texas oil and gas producers respond very impressively to market signals,” said Karr Ingham, the economist who created the TPI and updates it monthly, regarding the TPI’s record-setting climb. “Over the past several years, the industry has responded to higher crude oil prices by driving up production at a rate that borders on the miraculous.”
According to Texas Railroad Commission estimates, Texas producers recovered more than 69.9 million bbl of oil during September, 17% more than in September 2012. But crude output has grown even faster than current numbers would indicate. In the 12 months since its initial estimate, the commission revised September 2012 crude output upward by more than 12.5 million bbl to about 59.8 million bbl, an increase of about 26.5%.
Ongoing, upward revisions of statewide crude output have been substantial enough to offset declines this year in crude oil prices, the rig count and drilling permitting activity. In fact, adjustments of crude production in just one month were enough to lift the August 2013 TPI from 289.8--the previous record--to 290.2.
“It may well be that the industry's spectacular success at increasing crude production in Texas, across the U.S. and elsewhere will result in significantly lower wellhead prices and a corresponding decline in aggregate levels of upstream activity,” said Ingham. “Remember, the purpose of high prices in a correctly functioning market is to stimulate production and discourage demand, ultimately resulting in lower prices.
“Crude oil markets in Texas are functioning fabulously and prices are coming down. In the next few months and in 2014, crude oil producers must be wary. The great success they’ve achieved in cracking open new sources of supply and raising production is supposed to result in lower prices and, in fact, that may well be the case.”
A composite index based upon a comprehensive group of upstream economic indicators, the Texas Petro Index in September 2013 increased to a record 292.8, up 4.6% compared to the same month in 2012. Before the current economic expansion, the TPI’s previous all-time high of 287.6 occurred in September and October 2008, after which the TPI declined to 188.5 in December 2009, before embarking upon the current growth cycle.
Among TPI indicators during September:
• Crude oil production in Texas totaled an estimated 69.9 million bbl, nearly 12.5 million bbl (17%) more than in September 2012. Crude oil wellhead prices averaged $102.90/bbl, about 12.6% more than in September 2012. Production gains and higher wellhead prices combined to boost the value of Texas-produced crude oil by about 31.7%, to nearly $7.2 billion.
• Estimated Texas natural gas output was more than 635.6 billion cubic feet, a year-over-year monthly decline of 4%. Natural gas prices averaged $3.45/Mcf, about 32.9% more than in September 2012. Higher wellhead prices more than offset the production decline to boost the value of Texas-produced gas to nearly $2.2 billion, 27.6% more than in September 2012.
• The Baker Hughes count of active drilling rigs in Texas averaged 837, 4.5% fewer than in September 2012, when 876 rigs on average were operating. 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.
• The number of Texans estimated to be on oil and gas industry payrolls totaled 282,300, according to statistical methods based upon Texas Workforce Commission estimates revised in March. Industry employment in Texas reached a record 282,700 in August 2013, increasing from a low of 179,200 in October 2009. During the previous growth cycle, industry employment peaked at 223,200 in November 2008.