TAEP: TPI continues record pace, but threatened by falling oil prices

The Texas Petro Index (TPI), a composite index based on a comprehensive group of upstream economic indicators released by the Texas Alliance of Energy Producers (TAEP), continued on its record pace in September, reaching a score of 312.3, up 6% compared with September 2013.

Crude oil production in Texas totaled an estimated 94 million bbl, 23.6% more than in September 2013. With crude oil prices in September averaging $89.57/bbl, the value of Texas-produced crude oil totaled nearly $8.4 billion, 7.6% more than in September 2013.

Estimated Texas natural gas production reached 680.2 bcf, a meager year-over-year monthly increase of 0.3%. With natural gas prices in September averaging $3.92/Mcf, the value of Texas-produced gas increased 13.3% to $2.66 billion.

The Baker Hughes Inc. count of active drilling rigs in Texas averaged 902, increasing 7.8% from 837 active rigs in September 2013. 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. During the current economic expansion, the statewide average monthly rig count peaked at 932 in May and June 2012.

The number of Texans on oil and gas industry payrolls averaged a record 309,400, 9% more than in September 2013, according to statistical methods based upon Texas Workforce Commission estimates. Upstream oil and gas industry employment in Texas has increased steadily since falling to a nadir of 179,200 in October 2009. During the previous growth cycle, industry employment peaked at 223,200 in November 2008.

Impact of falling oil prices

Karr Ingham, economist and TPI creator, however, noted that the latest record-setting month was overshadowed in October by falling crude prices, which ended the month at about $78/bbl.

“Clearly the decline of oil prices suggests the current expansion of oil and gas drilling and development activity that began in January 2010 might be about to come to an end,” Ingham said. “Any slowdown—and the depth and length of that slowdown—will depend entirely upon how far prices fall and how long they remain relatively low.

“But remember, the oil price decline is neither accidental nor random,” he added. “It is the result of the spectacular crude oil production increases achieved by operators in Texas and all across North America in recent years, with assistance from sluggish economic conditions keeping a lid on energy demand growth.”

Ingham emphasized that the markets are operating as they should, as high prices have stimulated additional production, which in turn has given way to lower prices, benefitting consumers.