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The Texas upstream oil and gas economy remains in contraction through the third quarter 2020 according to the Texas Alliance of Energy Producers’ Texas Petro Index (TPI). The statewide exploration and production activity index declined for the 19th straight month in September, falling to 145.4 for the month down from 150.4 in August, and down by 27.5% compared to the September 2019 TPI of 200.6. Most recently, the Texas Petro Index peaked at 213.8 in February 2019, and has lost some 32% of its value since then. The TPI achieved its all-time record high of 313.9 in November 2014.
“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. 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,” said Karr Ingham, Petroleum Economist for the Texas Alliance of Energy Producers, and the creator of the Texas Petro Index.
Of the 32% loss in the Texas Petro Index since February 2019, over 23% of that has occurred since February 2020, and the April TPI decline was the largest one-month fall in the history of the analysis.
Even though crude oil prices have recovered somewhat, other measures of statewide E&P activity are just now finding their COVID low points, including the rig count, drilling permits, and industry employment.
In fact, the upstream oil and gas industry added a small number of jobs in September. If it holds, that will be the first increase in Texas E&P jobs since the onset of the pandemic, and in fact the first industry employment additions since April 2019. The most recent peak in upstream oil and gas jobs was about 228,450 in December 2018, and industry employment has largely been on the decline since then. From December 2018 through August 2020 nearly 70,000 direct E&P jobs were lost, including nearly 50,000 just since February of this year. In September, a handful of jobs were added – less than 50 according to the estimates. But that tiny fraction of industry jobs added back hopefully suggests that oil and gas employment in Texas has turned the corner after 21 months of industry job loss. *
The monthly average increase in the statewide working rig count was also very slight, with three rigs added in September compared to August. However, that small increase represents the first monthly addition of rigs since October 2018. The Texas and US rig counts dropped to historic low levels in May of this year and continued to worsen through August. In October 2018, 533 rigs were at work in Texas, 428 of which were lost through August 2020. Of that 428 rigs idled, 289 of those have been parked just since March of this year.
The number of drilling permits issued, also on the decline since late 2019, hit bottom in May of this year and has improved modestly since then. Still, the monthly drilling permit totals are the lowest by far over the entire history of the Texas Petro Index, for which data collection dates back to 1994.
Crude oil production in Texas peaked in March of this year at over 5.4 million barrels per day, before falling by over a million barrels per day over the next two months. Daily production fell to under 4.4 million BPD in April, but has increased each month since then as wells shut down in April and May have been restarted. Since May, crude oil production in Texas has grown by an estimated 430,000 barrels per day. “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,” said Ingham. “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, perhaps even beginning with the release of October estimates, and remain lower well into 2021 compared to peak levels of late 2019 and early 2020,” he said.
While the index continued its decline, September was an important month because it provides some important signals of the coming recovery in the Texas upstream oil and gas economy. “Normally there is very little reason to get excited about the addition of three rigs and 30 industry employees statewide from one month to the next,” said Ingham. “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 Texas Petro Index Analysis:
- Crude oil posted prices averaged $35.61 in September, down by 33% compared to the September 2019 monthly average. Posted crude oil prices in April, the worst of the pandemic pricing, averaged $14.68 per barrel.
- The statewide Baker-Hughes rig count averaged 108 in September, down by 75% compared to the September 2019 average of 427, and down by 80% compared to the 533 rigs on average in October 2018.
- 5,032 original drilling permits were issued by the Texas Railroad Commission in the first nine months of the year, a decline of nearly 44% compared to the total through September 2019.
- September monthly crude oil production is down by an estimated 7.2% compared to September 2019, while estimated natural gas production remains slightly in positive year-over-year territory compared to year-ago levels.
- An estimated 158,500 employees were on the payrolls of upstream oil and gas companies in Texas (operating/producing companies, service companies, and drilling companies), a decline of over 27% compared to the September 2019 industry employment estimate. “Support activities” jobs (service and drilling companies) are down by 36% compared to year-ago levels.
*The headline oil and gas employment data in Texas suggests that about 700 jobs were added back in September, which would also be the first month of job growth since April 2019. However, those estimates are not seasonally adjusted, which means the numbers for one month can only properly be compared to the same month in any prior year. They are also not adjusted for changes in trends that may be developing over the course of a given year. The Texas Petro Index utilizes industry employment estimates from the Federal Reserve Bank of Dallas, which are seasonally adjusted, and “early benchmarked” to enhance the ongoing accuracy of the data. The estimates are further adjusted by the Texas Alliance of Energy Producers to filter out mining jobs in Texas that are not related to oil and gas.