HOUSTON – Several factors will combine to make it difficult for U.S. and Texas E&P activity to grow during the last six months of 2019, said Karr Ingham, economist for the producers’ association, Texas Alliance of Energy Producers. Ingham said those factors include crude oil prices, natural gas prices, steel tariffs and U.S. protectionist trade policy. His comments came during the twice-yearly Texas Petro Index (TPI) briefing that the Alliance hosts for trade and other media in Houston. The TPI is a monthly measure of growth rates and cycles in the Texas upstream oil and gas economy. It is calculated by Ingham, based on a comprehensive group of E&P indicators. The latest overall index number for June 2019 was 207.1, said Ingham, compared to 203.0 a year earlier. These figures compare to the most recent TPI peak of 213.3 in October 2018. The index has since declined in six of the last eight months, including reductions in the last four months, straight. “The TPI has lost 2.9% of its value since October 2018,” noted Ingham. The numbers confirm what many people in the industry already know, which is that the U.S. E&P sector, particularly in Texas, has hit a plateau in the last 12 months, and is actually slipping a bit. “It is accurate to say that Texas upstream oil and gas is in a mild state of contraction through June 2019,” remarked Ingham. Indeed, seven of the 13 key statistics that he gathers to compile the TPI are down for the year, as well as in comparisons with the same month a year ago. For example, the year-to-date, average posted price for Texas crude oil is down 13.0%, at $53.84/bbl. Natural gas is faring far worse, down 37.0% for 2019, to date, at just $1.68/Mcf. On the drilling side of Texas activity, the rig count is down just 0.1% for the year, at 497 units, but when compared to June 2018, the figure is down 12.5%. Similarly, drilling permits are down 12.9%, at 6,254, year-to-date, but they have fallen 18.6%, compared to the June 2018 number. “The number of drilling permits is clearly tending down in the short term,” observed Ingham.
Oil well completions look worse, with the year-to-date figure down 12.8%, at 3,779, but the June 2019 count of 632 is a whopping 30.9% lower than the June 2018 number of 914.
In a strange, inexplicable twist of the data, given current natural gas prices, the number of gas well completions is up 10.6%, at 1,025. Furthermore, the June 2019 figure of 182 is 15.2% greater than the June 2018 total. Another interesting twist in the numbers involves the value of Texas oil and gas production. Despite the significant drop in oil and gas prices, the value of production has not fallen nearly as far, in percentage terms. This is because the volume of Texas production continues to rise. For example, the value of Texas oil output, year-to-date, is actually up 3.5%, at $48.2 billion, but that’s because oil production volume is up 19.0%, at 895.1 MMbbl, whereas crude prices are down 13.0%. However, the same cannot be said for Texas natural gas production. The year-to-date value is down 31.2%, at $7.9 billion, even though output volume is up 10.5%, at 4.8 Tcf. And that’s because gas prices are down 37.0% for the year, to date. Ingham added that “the crude oil share of total oil and gas production value is about 89%, compared to 11% for gas.” “Texas daily oil production stands at 42% of total U.S. production,” offered Ingham, and “Permian daily production stands at 25% of U.S. oil production, based on the output of Districts 7C, 8 and 8A, added together.” Reflecting the influence of the Permian, where associated gas production has skyrocketed as a by-product of shale oil output, the economist noted that associated gas production, as a share of total Texas gas output, has from from 10% in 2008 to in excess of 35% now. “There actually have been at least 2,200 jobs lost since October 2018,” said Ingham, noting that this reflected the plateau in activity. But he also offered the thought that the employment level may be sinking further, a possibility that can only be verified when the numbers for July and August come out later this year. Nevertheless, the latest monthly numbers stand in contrast to the 2014 peak of 297,100 people employed in Texas E&P, as well as the low point of 181,600 in September 2016. In finishing his analysis of the Texas E&P sector, the economist explained that current U.S. trade policy is not helping operators to boost activity. “Steel, in particular, is a problem and sore point for producers,” he explained. “Steel makes up at least 10% of upstream costs and maybe higher. When the U.S. government goes and raises the cost of an important component of E&P operations through tariffs, it certainly makes it more difficult for operators to boost activity.” He also noted that this type of trade policy can have other ramifications, as in the Chinese government reducing the amount of LNG imports from the U.S. significantly.