Texas Petro Index: Oil and Gas Activity Declines in First Half of 2023, Even as State Sets New Crude Oil Production Record
AUSTIN, Texas – Aug. 8, 2023 – While the Texas Petro Index (TPI) has declined across most upstream oil and gas indicators in the first half of 2023, Texas crude oil production has reached record levels during the same period. Production has now fully recovered its COVID-related declines from 2020, according to revised estimates from the U.S. Energy Information Administration, the Railroad Commission of Texas, and the Texas Alliance of Energy Producers.
“Texas daily crude oil production topped out at 5.45 million barrels per day in March 2020 and then dropped by 1.22 million bpd in April and May in response to sharp demand declines and crashing prices,” said Karr Ingham, Alliance Petroleum Economist and the creator of the TPI analysis. “Revised estimates, released just this week, indicate that Texas finally recovered that lost production exactly three years later in March 2023.”
Production improved to 4.454 million barrels per day in March, then declined a bit in April before surging to a new record 5.49 million barrels per day in May. Estimated daily production retreated a bit in June to a preliminary 5.456 million bpd, said Ingham. Monthly statewide crude oil production surpassed 170 million barrels for the first time ever in May, and Texas crude oil production reached nearly 980 million barrels in the first six months of 2023, easily a new record for the first half of the year.
The good news on the production front comes as drilling activity continued to decline, sending the Alliance’ Texas Petro Index to its fifth straight monthly decline in June. The TPI declined to 169.2 for the month, down from 172.9 in May but still up 1.2% from the June 2022 index of 167.2.
The Texas Petro Index reached its post-COVID peak of 179.6 in January of this year, and has declined by nearly 6% since then. The TPI, based at 100.0 in January 1995, achieved its all-time high of 272.2 in September 2014.
“Midway through 2023, the Texas upstream oil and gas economy is clearly in a state of contraction as measured by the Texas Petro Index,” said Ingham. “Prices have been lower compared to 2022 levels, and correspondingly the value of statewide production, with the rig count and the number of state-issued drilling permits lower as well.”
Monthly average crude oil prices are down by over 41% compared to year-ago levels, and have also fallen by about 12% since the beginning of the year, according to Ingham. The rig count, which was lower compared to year-ago levels for the first time in this cycle, has dropped by 32 rigs just since January. The number of drilling permits issued has been falling sharply since January, enduring double-digit percentage year-over-year declines each month February through June.
After record-setting growth in May, direct upstream oil and gas employment added a modest seasonally adjusted 260 jobs in June, and has improved by over 9,300 jobs in 2023 compared to the year-end 2022 total. “Again, however, continued job growth is in jeopardy given the deep declines in drilling activity thus far in 2023,” said Ingham.
Production typically continues to increase for several months after prices begin to decline, meaning that Texas is almost certain to set a new annual production record in 2023 as well. “After prices began to decline in the second half of 2014, it wasn’t until April 2015 that production began to decline in response,” said Ingham.
As Texas production increased in the first half of 2023, its share of total U.S. crude production increased to about 44%.
In real terms, the average crude oil price in the first half of 2023 was nearly $31.60/bbl lower compared to the average price in the first half of a year ago, and activity levels are lower this year as a result. However, says Ingham, increasingly tight global supply relative to growing demand is potentially creating a more bullish crude oil price environment in the second half of the year.
“The risk of recession appears to be waning, and that is good news for crude oil markets,” said Ingham. “Prices have already improved dramatically since June, hopefully setting the stage for a turnaround in Texas upstream oil and gas activity moving forward.”
Findings from the June 2023 Texas Petro Index include:
Crude oil price – The June monthly average crude oil price (WTI posted) was $66.42, down from the monthly high of $113.52 in June 2022. In real (inflation-adjusted) terms, the June monthly average was down by over 41% compared to June of a year ago.
Natural gas price – June natural gas prices averaged $1.89 (Henry Hub, Houston Ship Channel, and Waha Hub), down from $7.29 in June 2022. The June monthly average in real terms was down by nearly 75% compared to June of a year ago.
Rig count – The monthly rig count averaged 347 in June, down from 363 in May and down by about 3% compared to the June 2022 monthly average of 358. The rig count reached its post-COVID cyclical peak of 379 in January of this year.
Drilling permits – Operators took 805 original drilling permits in June, compared to 1,146 in June 2022. For the year to date, the 4,809 permits issued were down by over 18% compared to year-ago levels. And again, outside of the COVID-affected years of 2020 and 2021, these are the lowest permit totals since 2016, when the industry was in the throes of the deep 2015-2016 contraction.
Crude oil production – Crude oil production was up by a stout 9.7% in June compared to June of a year ago at nearly 163.7 million barrels, a daily average of 5.46 million barrels. However, the monthly real value of Texas crude oil production is down by about 25% through June compared to the first six months of 2022. The June monthly production value is down by nearly 38% year-over-year.
Natural gas production – June statewide natural gas production, also at record levels, was up by 7.5% compared to June of a year ago and is up by 8.0% for the year-to-date. The value of that production, however, is down a sharp 65% through the first six months of the year, and down by 73% in the month of June.
Direct upstream employment* – After increasing by a record margin in May, direct upstream (exploration and production) employment added a modest number of jobs in June bringing the total to an estimated 203,600 jobs. In the post-COVID cycle of expansion and recovery, about 46,300 jobs have been added back of the 83,300 jobs lost in 2019 and 2020. Industry employment reached its most recent cyclical peak of 240,600 jobs in December 2018, and its all-time peak of 307,300 in December 2014.
*Oil and gas extraction (operating and producing), service company, and drilling company jobs; early benchmarked and two-step seasonally adjusted by the Federal Reserve Bank of Dallas, 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, 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 January 1995 (based at 100.0) and releases it monthly. For more information, visit https://texasalliance.org/texas-petro-index/.
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