Global Econ Woes Weigh Down Texas O&G Expansion
Texas oil and gas producers began to rein in drilling and development activity in April as falling crude oil prices fed anxiety over growing economic uncertainty, possibly portending a halt to a 28-month-long expansion of the Texas upstream oil and gas economy.
"The average monthly posted price for crude oil in Texas was down in April year-over-year for the first time since October 2009," said Karr Ingham, the economist who created the Texas Petro Index (TPI) and updates it monthly. "As a result, the TPI for April was unchanged from March to April at 271.0, the first time since December 2009 the index did not post a month-to-month increase."
Ingham said a retreat from higher crude prices that prevailed earlier in 2012 was not entirely unexpected and even desirable from a consumer point of view, but the rate of oil-price decline had caught producers by surprise. Repercussions of European debt woes and economic slowdown in Asia on the U.S. economy in the remainder of 2012 are weighing heavily on crude oil markets, fueling lingering uncertainty about underlying support for crude oil pricing, he added.
"Producers don't have a solid sense about where the bottom may be, and that is making them a bit gun-shy and, perhaps, trigger-happy to curtail exploration and development drilling," Ingham said. "The TPI is designed to be on the leading edge of trend changes in the state's oil and gas exploration and production economy.
"So even though some indicators continued to increase through April, it is certainly possible we're on the cusp of a slowdown in upstream oil and gas activity."
A composite index based upon a comprehensive group of upstream economic indicators, the Texas Petro Index in April was 271.0--following a revision by Ingham in the method used to calculate the index--marking the first time since December 2009 that the TPI did not post a month-to-month increase. Based upon the new method of calculation, the TPI reached a low ebb of 188.5 in December 2009, following a peak of 287.8 in October 2008.
Among leading TPI indicators during April:
- Estimated crude oil production in Texas totaled nearly 41.75 million barrels, about 3.13 million barrels (8.1 percent) more than in April 2011. The value of Texas-produced crude oil totaled an estimated $4.15 billion, about $25.5 million (0.6 percent) more than in April 2011.
- Estimated Texas natural gas output totaled more than 576.36 billion cubic feet, a year-over-year monthly decline of about 8.5 percent. With natural gas prices in April ($2.07/Mcf) trailing prices in April 2011 ($4.23/Mcf) by more than 51 percent, the value of Texas-produced gas declined about 55.2 percent to about $1.19 billion.
- The Baker Hughes count of active drilling rigs in Texas averaged 923, 17 percent more than in April 2011, when 789 rigs on average were active. 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 by the Texas Workforce Commission to be on oil and gas industry payrolls continues to climb, totaling 249,000, about 14.9 percent more than in April 2011. Industry employment has grown from a low of 179,200 in October 2009 after reaching a record of 222,300 in October 2008, during the previous growth cycle.
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