September Texas Petro Index: Texas Upstream Oil and Gas Economy Up 30 Percent Year Over Year
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The Permian Basin leads the U.S., returning to record and growing levels of crude oil production
AUSTIN, Texas – November 8, 2022 – The Texas Alliance of Energy Producers Texas Petro Index (TPI) increased again in September, improving to 174.6 for the month up from 173.1 in August, and up 30.3% from the September 2021 TPI of 134.1. Most components of the index are showing impressive year-over-year growth including crude oil and natural gas prices, the rig count, the number of drilling permits issued, and statewide direct upstream industry employment. Alliance Petroleum Economist Karr Ingham created the TPI and maintains it monthly for the organization.
The year-over-year growth rates are masking some issues in the Texas upstream sector, in that rig count growth has slowed (and lost 10 rigs on average in September compared to August), and statewide crude oil production is struggling to return to pre-COVID record levels established in early 2020.
Upstream oil and gas employment growth is also experiencing a more tepid recovery than would typically be the case in an expansion with high crude oil and natural gas prices in 2022. And even though higher prices have been the case in 2022, crude oil prices have declined for three straight months after reaching the 2022 peak in June.
On balance, however, the industry remains in expansion through September 2022 with crude oil production increasing, albeit slowly, and statewide natural gas production at record levels and climbing. The value of statewide oil and gas production is pushing the index upward along with drilling permits which are steadily posting double-digit percentage year-over-year growth.
Industry employment growth slowed in September with fewer than 1,000 jobs added over the month, compared to an average 3,900 jobs added per month in June, July, and August. Upstream employment (jobs in oil and gas producing/operating companies, service companies, and drilling companies) climbed above 193,000 in September, but remains well below the previous cyclical peak of nearly 241,000 jobs in December 2018.
Texas and the Permian Basin Are Shouldering the Load for the United States
A deeper look into the production data in Texas and the U.S. reveals the difficulty in returning production to pre-COVID record levels. The Permian Basin is the only major producing region in the United States to have fully recovered its lost COVID production and returned to record and growing production. Only two U.S. states have done so, and Texas is not one of them.
New Mexico is now producing at record levels thanks to the New Mexico Permian, and Utah, which produces only about 121,000 barrels per day (bpd), is also now producing state record volumes of crude oil.
Texas continues to struggle to return statewide production to the pre-COVID record of 5.45 million barrels per day achieved in March 2020, as production outside the Permian lags its pre-COVID levels, and in some cases, the 2015 peak in production. This is the case in the Eagle Ford, as the current production volume is still down by nearly 200,000 bpd compared to pre-COVID levels, but is down by over 535,000 bpd compared to the region’s production peak in 2015.
Even production in some parts of the Permian remain below prior levels, and in fact District 8 is the only Texas Railroad Commission (RRC) district in Texas that has grown production significantly.
“RRC District 8 (Midland) is shouldering the load not just in terms of growing Texas production, but also U.S. national production as well,” said Ingham. “It was clear early on in 2022, when the need for a global crude oil supply solution became more apparent, that Texas was the only logical source of that production, the Permian Basin specifically. And in the Permian, that means RRC District 8 and the New Mexico Permian.”
District 8 is driving activity in the Texas Petro Index as well. Of the average 361 rigs operating in Texas in September, 194 of them were in District 8 alone. Of the 984 original drilling permits issued, 499 of them were in District 8, along with 820 of the 1,631 crude oil well completions in September. Of the estimated 5.15 million bpd produced in Texas in September, over 3.1 million of those came from RRC District 8.
“Any major U.S. production region or state not connected to the Permian is either not growing production at all, or is doing so very slowly,” said Ingham. “That leaves Texas and the Permian to do the heavy lifting for the United States, and at the moment that means RRC district 8 and Lea and Eddy counties in New Mexico.”
Other findings in the September TPI analysis:
Texas direct upstream oil and gas employment* climbed above 193,000 in September, which means about 34,500 jobs have been added to upstream payrolls since the COVID low point of 157,700 in September 2020. The high-water mark for Texas oil and gas exploration and production (E&P) employment was 307,300 in December 2014.
Crude oil production is lagging nationally as well, with U.S. September production off by nearly 1.2 million bpd compared to the peak of 13 million bpd in November 2019. Further, the U.S. Energy Information Administration (EIA) has revised its earlier projections and now does not expect U.S. production to return to that 13 million bpd by year-end 2023.
- Natural gas prices (the average of Waha and the Houston Ship Channel) averaged $6.47, a real increase of 24.5% year-over-year.
- The statewide rig count averaged 361 in September, down 10 from the August average of 371 but up by over 50% compared to the September 2021 statewide average of 237. At its most recent cyclical peak, the statewide rig count averaged 533 in October and November 2018.
- The 8,639 original drilling permits issued through the first nine months of the year is up by over 37% compared to the January-September 2021 total, but remains down compared to the 10,414 permits issued through September 2018 in advance of the 2019 contraction and deep COVID declines in 2020.
- Statewide natural gas production has been producing at record levels since October 2021 and continues to climb, outpacing year-ago levels by an estimated 7.3% in October and 8.3% for the year-to-date through September.
- The real value of statewide natural gas production has never been higher with record production and higher prices in 2022.
- Even though crude oil production remains below previous record levels, the real value of statewide crude oil production is also at record levels through September 2022.
*Dallas Federal Reserve Bank, with additional adjustments by TAEP
About the Texas Petro Index
The Texas Petro Index (TPI) is a monthly measure of growth rates and cycles in the Texas upstream oil and gas economy. The TPI is calculated based on a comprehensive group of exploration and production (E&P) indicators, which include crude oil and natural gas wellhead prices, rig count, drilling permits, oil and gas well completions, volume and value of Texas crude oil and natural gas production, and industry E&P employment. Karr Ingham, Petroleum Economist and Executive Vice President of the Texas Alliance of Energy Producers, created the TPI in 2003 with a base of 100.0 in January 1995 and releases its monthly.
In March 2022, Ingham made the first major methodological revision to the TPI since its inception. He fully adjusted the TPI for inflation, for the purpose of making more accurate comparisons over a long period of time. For more information, visit https://texasalliance.org/texas-petro-index/.
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