Texas’s upstream oil and gas economy is finally signaling a new boom in activity following the double-barrel contraction of 2019 and 2020, economic indicators show.
The Texas Petro Index (TPI), created and overseen by oil economist Karr Ingham of the Texas Alliance of Energy Producers, has risen through June for three consecutive months and four of the past five months.
The index improved to 147.2 in June from 143.1 in May. Yet the state remains in recovery mode, with the index down 7.2% from the June 2020 score of 158.6.
The index “hit its most recent cyclical high of 213.6 in February 2019 and remains down about 31% until June from that level,” the TPI researchers noted. “From peak to trough, the contraction lasted 23 months, from February 2019 to January 2021, during which time the TPI fell 38.6%.”
The index is calculated on the basis of a group of exploration and production (E&P) indicators. They include wellhead prices, number of rigs, drilling permits, well completions and volume / value of production in Texas, as well as employment. The TPI is calculated in base 100 in January 1995; it reached a record high of 314 in November 2014.
The first stage of the upstream Texas slowdown began at the end of the first quarter of 2019, as oil prices contracted, resulting in reduced activity through early 2020. The impacts of Covid -19 then led to steeper declines, Ingham noted.
“The 2019 contraction was not a minor event, with significant declines in activity and about 20,400 jobs lost in the upstream sector in Texas,” he said. “But that pales in comparison to the decline of Covid in 2020, in which the number of statewide drilling rigs fell to unprecedented levels and another 61,000 oil and gas E&P jobs of Texas were lost between February and September. “
After falling below $ 10 a barrel in April 2020, oil prices started to recover, but they only returned to early 2020 levels in the first two months of this year.
“The number of drilling rigs statewide, averaging 533 in the fourth quarter of 2018, finally fell to an average of 105 in August,” the Alliance report notes. Still, Texas oil production continued to increase until March 2020, eventually reaching a record 5.4 million bpd. In April and May 2020, however, production fell by more than a million bpd.
“Texas’s upstream oil and gas indicators through June 2021 tell the story of the slow but steady recovery underway,” Ingham noted.
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For example, natural gas prices averaged $ 2.99 / MMBtu in June, up from $ 1.07 in March 2020. Prices are at their highest level since January 2018, with the exception of soaring prices. gas prices in February in response to winter storm Uri.
Additionally, posted West Texas Intermediate crude averaged $ 67.39 in June compared to $ 14.68 in April 2020. Prices are now at their highest level since November 2014.
The number of statewide platforms also improved, reaching 219 in June from 205 in May 2020, the TPI noted. Just over 4,000 original drilling permits were issued up to June, compared to 3,793 in the first six months of 2020. In contrast, nearly 7,200 permits were issued from January to June 2018 before the figures. do start to decline in 2019.
“Estimated crude oil production in Texas averaged 4.82 million barrels per day in June,” the Alliance report said. “This means that approximately 418 million bpd has been added to statewide production of the more than one million bpd lost from March to May 2020.”
On the employment front, direct upstream employment – operations / production, petroleum services and drilling – topped 160,000 in June.
“This suggests the addition of about 14,200 of the nearly 81,500 jobs lost during the entire contraction,” the report said.
Fewer platforms needed
According to Ingham, operators were able to add last year’s lost production without adding large chunk rigs and drilling new wells.
“First, the operators simply restarted wells that had been closed during Covid. In addition, wells that were previously drilled but not completed are now completed and brought online. “
The inventory of drilled but unfinished wells, aka DUCs, has fallen by nearly 35% in the past year in the Permian Basin and by about 31% in the Eagle Ford Shale, according to Ingham.
The statewide recovery has been cautious, he said, “with the often-discussed capital discipline on the part of traders and the shift in investor sentiment focusing more on the return on investment. investment as opposed to the rapid expansion of reserves with potential for future gain. “
Yet the nature of the production increases to date is temporary. E&P could possibly turn to stimulate activity in order to meet the demand implied by the rise in prices. This in turn should lead to an increase in the demand for labor.
“Texas oil and gas producers understand the message behind the higher prices for crude oil and natural gas, and that is to bring additional product to market if possible,” Ingham said. “Texas and America’s independent oil and gas producers have proven time and time again that it is possible.
“If prices continue to rise and operators don’t respond by drilling more wells and pushing the number of rigs up, this would be the first time this has happened. “