Texas Alliance PetroIndex: Independents prospering on steady high prices

Paula Dittrick
Senior Staff Writer
HOUSTON, July 22 -- The price for West Texas Intermediate crude oil posted prices has averaged $33.41/bbl for the first half of this year compared with $28.15/bbl for the same time last year.

The average price for the last 12 months was more than $30/bbl for the first time in the history of the Texas Alliance PetroIndex, sponsored by the Texas Alliance of Energy Producers, a 2,200-member organization based in Wichita Falls, Tex.

The index reflects a composite number of more than 20 Texas oil and gas production and exploration indicators. It incorporates commodity prices, rig counts, drilling permits, oil and gas completions, production volumes, and industry employment. Statistics include figures from the Baker Hughes Inc. rig count and the Texas Railroad Commission.

"As opposed to previous periods in which prices for crude oil and natural gas spiked. . .the current price scenario is one of measured, steady improvement over time, allowing for the slow, healthy buildup of activity. And what it has done in Texas frankly, is to give the state's independent companies their first real opportunity—since the shakeout resulting in the departure of the majors from the Texas exploration and production scene—to establish a strong foothold and begin to thrive and prosper," petroleum economist Karr Ingham said at a Thursday news conference. He is president of the Amarillo, Tex.-based Economic Reporting.

For the index oil price, Ingham uses average WTI postings. For gas, he averages first of the month prices from Waha Hub and the Houston Ship Channel.

The average spot gas price for the first half of the year has been $5.45/Mcf compared with $5.63/Mcf for the same period last year.

Index trends
The monthly index is based at 100 in January 1995. For June, the index was 149.8, which is the highest since August 2001 when the index was 142.8. Ingham expects the index will break 150 this summer.

Regarding a yearend index forecast, Ingham forecast that the December 2004 index will be 158 or 159.

"The world may well be entering a new phase of energy economics, in which rapidly rising demand may outpace the supply of crude oil and natural gas on a virtually continual basis. This is the recipe, in fact, for what is now occurring—sustained strong prices, arrived at steadily over time.

"And that, in turn, is the recipe for solving the industry's traditional problems—short, troublesome cycles, labor and equipment shortages, and volatile, unreliable pricing trends. Still, prudence and caution are the rule of the day as the market for raw petroleum products historically has been brutally unpredictable," Ingham said.

He believes industry might be moving into a period in which the price swing cycle leveling off for a while vs. the "roller coaster" ups and downs of the past.

Ingham anticipates a leveling off of the index statistics because energy commodity prices are remaining higher for longer periods and also because natural gas demand is steadily demand.

"It's been relatively steady in this cycle," he said. "We've moving out of a recovery into a steady period."