Texas Petro Index: Crude oil activity boosts state’s recovery, expansion

Posted on 25 January 2012

By Joanne Liou, editorial coordinator

Texas’ petroleum landscape continued the shift from natural gas toward oil as the state sustained a two-year recovery of the upstream oil and gas economy in 2011, according to a monthly index compiled by the Texas Alliance of Energy Producers. The Texas Petroleum Index (TPI) ended last year at 259.1, up from 229.9 at the end of 2010

In a year-end review of 2011, Karr Ingham, creator of the Texas Petroleum Index and owner of Ingham Economic Reporting, explains how Texas sustained a two-year recovery of the upstream oil and gas economy. The Texas Petroleum Index (TPI) ended 2011 at 259.1.

“That’s exactly two solid years of expansion, 24-straight month-to-month increases in the TPI,” Karr Ingham, creator of the index and owner of Ingham Economic Reporting, said. However, the index “has not yet managed to work its way back to where we were in the peak period in 2008, and that has essentially everything to do with the fact that we’re getting very little help, if any, on the natural gas side of the E&P equation in Texas. The effect of natural gas E&P in Texas is frankly staggering.”

The decline of Texas natural gas production is not in keeping with trends on the national level. “Texas is very responsive to gas price decline, and activity in the Barnett certainly did not shut down, but it slowed dramatically,” Mr Ingham explained. While US natural gas production increased slightly by about 3% to 4% in 2011 over 2010, Texas experienced a decline of 6% to 7%.

Texas’ petroleum industry continues to experience a shift in activity from natural gas to crude oil production in response to low natural gas prices.

The expanding crude oil activity more than compensates for the natural gas side, however. The statewide rig count, driven by oil or liquids-rich projects, continued its climb in 2011 and has already shown a positive number for 2012. “The January rig count has reflected an increase above 920,” Mr Ingham said, “and that trend should continue an upward march close to where our peak was in 2008.” Drilling activity in Texas peaked at a monthly average of 946 rigs in September 2008.

Oil drilling is also driving another component of the index – the number of drilling permits. Approximately 22,480 permits were issued in Texas in 2011, short of the 2008 peak of 24,000. However, in 2008, both natural gas and oil were contributors to the peak, whereas in 2011, “very few permits were issued for rigs that drilled for natural gas,” Mr Ingham said.

The industry expansion in oil activity has spilled over to boost employment numbers in the state as well. The direct industry jobs and the ripple effects of supporting jobs make up a significant share of Texas’ total employment growth. “On a conservative basis in Texas, for every industry job that is added, you could multiply that by about five,” Mr Ingham stated. The state surpassed its 2008 peak in terms of employment last year, employing more than 230,000 Texans in the oil and gas industry.

Last year marked the state’s highest crude oil production volume since 1998, at 453.3 million bbls, while natural gas output was 577.9 bcf, a year-over-year decline of 10.8 percent, and Mr Ingham expects Texas production to continue to trend toward oil in 2012 and beyond.

TPI, a service of the Texas Alliance, is a composite number based on economic indicators, including oil and gas prices, rig counts, drilling permits and production volume. The index began in January 1995 at 100.0 as the base.

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