Has the Texas Upstream Slump Bottomed Out?

The Texas Alliance of Energy Producers revealed this week that its Texas Petro Index (TPI) – a cyclical measure of the health and vitality of the state’s oil and natural gas economy – shows that exploration and production activity fell for the 19th straight month in September.

 

However, the organisation stated the TPI also reflects potential early signs of recovery on the horizon.

 

“The Texas Petro Index shows that the upstream oil and gas economy in Texas was in a state of contraction for virtually all of 2019 and early 2020 even before COVID came along,” Karr Ingham, petroleum economist with the Texas Alliance of Energy Producers and the TPI’s creator, remarked in a written statement e-mailed to Rigzone.

 

“But the downturn obviously sharpened in March of this year as the rapid demand loss – coupled with a market share fight between Saudi Arabia and Russia – began to cripple oil and gas development activity in the US.”

 

Based at 100.0 in January 1995, the TPI tracks metrics such as price, rig count, drilling permits, well completions and employment, according to the Alliance.

 

The organisation noted the TPI fell from 150.4 in August 2020 to 145.4 in September 2020.

 

In contrast, the September 2019 figure was 200.6, or 27.5 percent higher year-over-year, it added.

 

The Alliance also pointed out the all-time high for the TPI was 313.9 in November 2014.

 

According to the Alliance, some measures of state-wide exploration and production activity – rig count, drilling permits and industry employment – are just now finding their COVID low points. The organisation stated that if the small September jobs gain holds, it will mark the first uptick in Texas E&P jobs since the onset of the pandemic – not to mention the first additions to industry employment since April 2019.

 

The Alliance also observed that crude oil production in Texas has grown by an estimated 430,000 barrels per day since May of this year, but Mr Ingham advised caution regarding the trend.

 

“Production increases in recent months in Texas and the US may appear a bit troublesome simply because growing production could easily overwhelm crude oil demand, which has stalled in the third quarter,” the economist explained.

 

“However, I think these increases may be temporary. There is simply not enough new drilling activity to grow production steadily going forward, so crude oil production is likely to flatten or decline, even beginning with the release of October estimates, and remain lower well into 2021 compared to peak levels of late 2019 and early 2020.”

 

The Beginning of the End?

Although the TPI continued its decline, the Alliance contends that September was an important month because it offers key signals of the coming Texas upstream recovery.

 

“Normally there is very little reason to get excited about the addition of three rigs and 30 industry employees state-wide from one month to the next,” Mr Ingham said, referring to changes from August to September. “But when they represent the first increases in over a year and a half, and on the heels of the worst demand contraction on record thanks to COVID, the numbers are very exciting because hopefully they signal the beginning of the end of this nasty downturn.”

 

Findings from the September 2020 TPI include:

 

  • The US$35.61 average per-barrel crude oil price for September represents a 33-percent decline from the corresponding period in 2019. The average for April 2020 – at the nadir of pandemic pricing – was US$14.68 per barrel.

 

  • The average Baker Hughes rig count for Texas in September was 108, down 75 percent year-over-year.

 

  • The Texas Railroad Commission issued 5,032 original drilling permits in the first nine months of 2020, translating into a nearly 44-percent drop from the total through September 2019.

 

  • September 2020 monthly crude oil production is down by an estimated 7.2 percent against the September 2019 figure, but natural gas production estimates remain slightly positive compared to the year-ago level.

 

  • Approximately 158,500 employees were on Texas upstream payrolls – for operating/producing companies, service companies and drilling companies – in September 2020. That represents a more than 27-percent year-over-year decline. Also, “support activities” jobs with service and drilling firms are down 36 percent for the period.

 

“ExxonMobil late last week announced the elimination of some 14,000 jobs, including employees and contractors, and that about 1,900 of those jobs were expected to be shed in the US,” commented Mr Ingham.

 

“Unfortunately, most of those cuts are expected to come from its management workforce in Houston. That is just the latest in a rash of similar announcements from Shell, BP and Chevron, and other large companies, the combined effects of which will be to shed more than 50,000 jobs in total.

 

“And they are not the only ones. Oil and gas companies up and down the size spectrum have been eliminating jobs since well before the pandemic set in this year.”

 

Source: Rigzone