Falling crude prices slow petroleum-industry recovery
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HOUSTON--Falling wellhead prices for crude oil in August slowed expansion of the Texas petroleum economy, limiting the Texas Petro Index (TPI) to the smallest month-to-month increase since the statewide industry recovery began in January 2010.
“Daily oil prices, which peaked in April at more than $110 per barrel ($/bbl), dipped to less than $79/bbl by the end of August,” said Karr Ingham, the economist who created the TPI and updates it monthly. “That’s a decline of nearly 30 percent, and spot prices have come down yet further since then.”
Ingham said some leading indicators of Texas oil and gas industry economic health are still growing despite the oil price decline. For example:
An average of 885 drilling rigs were working in Texas during August, nearly 24 percent more than in August 2010; in addition, monthly rig count averages have led year-to-date averages since January.
Applications for permits to drill wells reached a year-long high in August of 2,051, 27 percent more than in August a year ago; through August, Texas producers filed 15,217 drilling permit applications, 3,255 more than during the first eight months of 2010.
However, other indicators are beginning to show the economic strain:
Oil well completions in August totaled 365, 9.2 percent fewer than in August 2010; cumulative oil well completions this year through August (3,071) trailed 2010 completions during the same period (3,812) by 19.4 percent.
After surpassing the pinnacle of employment achieved in October 2008, during the industry’s last boom, in June and July (224,200 and 230,400, respectively), the number of Texans working in the state’s upstream oil and gas industry declined modestly to an estimated 230,000.
“Oil prices in the mid-$70s/bbl may well support current levels of activity or even sustain modest growth,” Ingham said. “But producers have to be concerned about how low oil prices will go and at what price level indicators like the rig count or drilling permits will begin to be negatively affected.”
“If operators and E&P companies begin to expect prices will decline further, those expectations might convince them to ratchet back on expansion activities.”
A composite index based upon a comprehensive group of upstream economic indicators, the Texas Petro Index increased in August for the 20th consecutive month to 247.7, from a low in December 2009 of 186.6. The TPI peaked at 286.0 in September and October 2008.
Among leading TPI indicators during August:
Crude oil production in Texas totaled an estimated 36.48 million barrels, 1.6 percent more than in August 2010. The value of Texas-produced crude oil topped $3.0 billion, 14.6 percent more than in August 2010.
Estimated Texas natural gas output was more than 585.4 billion cubic feet, a year-over-year monthly decline of about 8.4 percent. The value of Texas-produced gas totaled nearly $2.56 billion, about 10.1 percent less than in August 2010.
The Baker Hughes count of active drilling rigs in Texas averaged 885, 23.9 percent more than in August 2010, when 714 rigs were active on average. 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 on oil and gas industry payrolls totaled an estimated 230,000, about 30,500 (15.3 percent) more than in August 2010, according to the Texas Workforce Commission. According to initial TWC estimates, the number of upstream oil and gas workers in Texas peaked in July 2011 at 230,400. The previous high--an estimated 223,200 workers following a revision to reflect new industry employment data for 2009 and 2010--occurred in October 2008.
DITOR’S NOTE: 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.