Texas Petro Index

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Texas Oil and Gas Economy Suffers Sharp Contraction in 2020

Texas Petro Index declines 30% in 2020 but is poised to find its cyclical trough in early 2021

AUSTIN, Texas – Feb. 1, 2021 – The Texas upstream oil and gas economy endured a 30% contraction in 2020, according to the Texas Alliance of Energy Producers’ Texas Petro Index (TPI). This decline was largely due to COVID-19 and the resulting catastrophic contraction in global energy demand.  The TPI posted its 22nd straight month of decline in December, falling to 134.3 for the month down from 137.0 in November, and down 30.5% from the December 2019 index of 193.2. 

A statewide oil and gas activity index based at 100.0 in January 1995, the Texas Petro Index achieved its most recent cyclical peak of 213.8 in February 2019 and has lost over 37% of its value since then.

“As these numbers would suggest, the Texas upstream oil and gas economy was already in a state of contraction before the onset of COVID as an economic event in 2020, with the steady decline in 2019,” said Alliance Petroleum Economist Karr Ingham.  “The COVID impacts beginning in March 2020 are obvious, and the change in the various components of the TPI as well as the index itself are easily measured.”

The demand contraction in the U.S. and globally was easily the sharpest demand drop in the shortest amount of time on record and occurred at a time when production levels were reaching record highs. This created a recipe for crude oil price declines at an unprecedented pace.  The short-lived but devastating market share war between Saudi Arabia and Russia made an already untenable market situation dramatically worse.

Among the findings of the Texas Petro Index analysis in 2020:

  • Monthly posted West Texas Intermediate crude oil prices fell by over 30% on average in 2020 compared to 2019; between January and April 2020, posted monthly crude oil prices declined by 73% before rebounding in May.
  • The monthly statewide Baker-Hughes rig count declined by over 60% in 2020, ending the year at 155 in December compared to 406 in December 2019. Between February and August 2020 the rig count declined by nearly 75%, falling to the lowest levels since Baker-Hughes began tallying the weekly rig count in 1944. The weekly statewide rig count fell to 100 in the second week of August 2020.
  • The number of drilling permits issued by the Texas Railroad Commission in 2020 dropped by 46% for the year (the lowest since at least 1960 – the Texas RRC website posts permit and completion data from 1960 forward). Between February and May, however, the number of permits issued fell by nearly 80%.  A record low 251 permits were issued in May 2020.
  • Nearly 60,000 direct upstream (exploration and production) oil and gas jobs were lost in 2020. However, since the most recent industry employment peak of over 228,000 jobs in December 2018, an estimated 78,000 jobs have been lost, which is a decline of about 35%.

“The job loss is devastating,” said Ingham, noting that the 150,000 estimated upstream jobs remaining in Texas at year-end 2019 is the lowest since 2005, when Texas crude oil production was only about one fifth of production levels in 2019 and early 2020.  “In addition, wages were pushed down sharply for those who remained on oil and gas company payrolls.  The combined effects of lost jobs and lower industry wages only served to worsen the effects of COVID on the statewide economy, and on local and regional economies with strong ties to oil and gas production.”

Texas statewide crude oil production reached its all-time record of over 5.4 million barrels per day in March 2020.  Between March and May, crude oil production dropped sharply, falling by an estimated 1.03 million barrels per day, a decline of nearly 20% in two months.  Since May, nearly 407,000 barrels have been added back to Texas daily production, which finished the year at an estimated 4.81 million barrels per day.

Texas’s share of total U.S, crude oil production had grown to about 42% in 2019.  While production fell both nationally and in Texas, U.S. national crude oil production declined at a slightly faster pace. By year-end 2020 the Texas share of U.S. total production had grown to 44%.

A number of Texas upstream indicators have turned the corner from the worst of the COVID lows, most notably crude oil prices and the monthly statewide rig count.  A small number of industry jobs were added back in the final four months of the year following the employment low point in August.  According to the current best estimates, about 2,300 jobs have been added back to oil and gas company payrolls of the 78,000 jobs lost. 

“That the industry is adding jobs is encouraging, pointing to at least somewhat better times ahead in 2021,” said Ingham.  “The Texas Petro Index is poised to find its cyclical trough, hopefully in the first quarter 2021, and begin to register a long and steady recovery from the ravages of COVID in 2020.”

For more information about the Texas Petro Index, visit https://texasalliance.org/texas-petro-index/

About Texas Alliance of Energy Producers

Founded in 1930, the Texas Alliance of Energy Producers is the most knowledgeable and effective statewide oil and gas association in the nation. Serving nearly 3,000 members, the Alliance provides a voice for sound U.S. energy policy. These individuals and organizations – from small independents to publicly traded companies – are the driving force behind the U.S. energy renaissance. For more information, visit https://www.texasalliance.org/ and @TexasAllianceEP.

*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.  The “headline” upstream oil and gas estimates are revised just once a year, which means that the data often become inaccurate during times of rapid employment gain or loss.  They are also not seasonally adjusted, making month to month comparisons difficult and sometimes inaccurate as well.