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OIL PRODUCTION, NATURAL GAS PRICES ON THE RISE.
Oil and gas activity turned modestly upward in the first quarter of 2013 after slight declines in the latter half of 2012, according to the latest Texas Petro Index.
Crude oil production, natural gas prices and industry employment all posted year-over-year gains to help push the TPI upward in March.
After seven straight months of decline, the statewide rig count rose in February and March, crude oil prices have stabilized and natural gas prices, while still not favorable to significant increases in activity, have improved considerably compared to year-ago levels.
Highlights of activity in the oil and gas industry this past month are:
■ The Texas Petro Index increased to 277 from 275.2 last month.
■ The number of Texans estimated to be on oil and gas industry payrolls reached a record 271,000, according to statistical methods based upon Texas Workforce Commission estimates revised in March. Industry employment in Texas dropped to a low of 179,200 in October 2009 after reaching a high of 223,200 in November 2008 during the previous growth cycle.
■ Crude oil production in Texas totaled an estimated 50.2 million barrels, about 6.0 million barrels (11.5 percent) more than in March 2012.
■ Natural gas prices averaged $3.30 per thousand cubic feet, about 38.2 percent more than in March 2012.
■ The Baker Hughes count of active drilling rigs in Texas averaged 833, 9.8 percent fewer than in March 2012, when 924 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 TPI has been generally flat at a high level for some nine months or so,” said Karr Ingham, the economist who created the TPI and maintains it monthly. “After four straight months of slight decline to finish out 2012, the index has increased for three straight months this year, indicating moderate expansion in the Texas upstream oil and gas economy.
“It’s difficult to say how long this period of relative prosperity will persist, but we should never assume the prices underpinning current levels of activity will always remain favorable.”
Some indicators show expanded activity is in the offing. But Ingham said recent upward revisions of estimated Texas crude oil production could be market-moving in some scenarios.
The real story in the Texas upstream oil and gas industry continues to be the dramatic increase in Texas crude oil production, Ingham said.
“The volume of crude oil being produced in Texas continues to be revised upward in huge chunks,” Ingham said. “Current estimates now suggest crude oil production increased by about 117 million barrels in 2012 compared to 2011; that would amount to an increase of about 22 percent, on top of a 22 percent increase in 2011 (over 2010).
“In short, Texas production is sharply on the rise, a trend that seems poised to continue into the foreseeable future. It is only prudent to consider how much production would have to increase beyond current levels to before excessive supplies begin to erode crude oil wellhead prices. So, the workings of crude oil markets must be kept in mind.”
Ingham noted, however, that unlike the natural gas oversupply that built up in advance of the 2008 national recession, more than 40 percent of U.S. crude oil usage is still imported, providing considerable wiggle room for displacement of imports rather than the creation of excess supply.
A composite index based upon a comprehensive group of upstream economic indicators, the Texas Petro Index in March 2013 increased to 277.0, up 1.2 percent from the same month in 2012. The TPI reached an all-time high of 287.8 in October 2008 and then declined to 188.5 in December 2009 before embarking upon the current growth cycle. The March TPI represents the peak in the current cycle.