Dramatic upward revisions of crude oil production in Texas combined in August with strong crude prices and strengthening natural gas prices to propel the Texas Petro Index to a record high for the second straight month and lift the estimated number of workers on oil and gas company payrolls to a new high as well.
But the TPI also revealed that state regulators issued only 1,606 drilling permits, the fewest during any August since 2009, when oil and gas activity was in sharp decline. Fewer permits to drill could exert downward pressure on upstream oil and gas activity in the coming months.
“The Texas Petro Index continued its march into record territory in August, rising to 289.8,” said Karr Ingham, the economist who created the TPI and updates it monthly.
That eclipsed the old record, set in July, which itself was revised upward by Ingham to 288.2 from 287.7 due to ongoing, upward revisions of Texas oil production since the July 2013 TPI was released less than 30 days ago.
Also contributing to the record TPI in August were natural gas prices. “While still lower than during the gas-driven expansion of Texas E&P activity from 2003 to 2009, they were solidly improved compared to year-ago levels and, thus, are providing upside support to the TPI rather than acting as a drag,” Ingham said.
In addition to the sharp decline in the number of drilling permits granted, drilling activity in August was slightly lower than in August 2012, exerting downward pressure on the TPI. However, the statewide rig count this year has climbed slowly but steadily after declining in the second half of 2012. “Each working rig represents considerable associated economic activity in terms of employment, services provided to the rig and to the well, lease and royalty payments, and so on,” Ingham explained. “However, the historic relationship between drilling permits and rig activity is evolving because technological advances enable several wells to be drilled from the same pad with the same rig.
“Nevertheless, the rig count remains an important upstream economic indicator, however, simply because it clearly shows a positive correlation with price--when prices go up, so does the rig count, and when prices go down, the rig count does the same.
“Ultimately,” Ingham said, “crude oil pricing will determine the direction of the TPI over the coming months; if prices remain above $100 per barrel ($/bbl)--or even in the $90-$95/bbl range--the rig count will continue its steady improvement, drilling permits will stabilize or increase, and the industry will continue to add jobs. And at this point, all of that seems very likely.”
A composite index based upon a comprehensive group of upstream economic indicators, the Texas Petro Index in August 2013 increased to a record 289.8, up 4.6% compared to the same month in 2012. Before the current economic expansion, the TPI’s previous all-time high of 287.6 occurred in September and October 2008, after which the TPI declined to 188.5 in December 2009 before embarking upon the current growth cycle.
Among TPI indicators during July: