American Oil and Gas Reporter - August 2021 - 70

TPI Observes Slow, Steady Recovery
SpecialReport: Fracturing Tech
-AUSTIN, TX.-Midway through the
year, the Texas Alliance of Energy Producers'
Texas Petro Index indicates the
upstream oil and gas economy is on the
mend following a double barrel contraction
in 2019 and 2020. The Alliance offered
the midyear update on July 27, at which
point the TPI had increased for three
straight months, and four of the last five
months, which the association says signals
a new cycle of expansion in statewide exploration,
drilling and production activity.
According to Alliance petroleum economist
Karr Ingham, who created the TPI
and maintains it monthly, the index improved
to 147.2 in June, up from 143.1
in May, but down 7.2% compared with
the June 2020 index of 158.6. The Texas
Petro Index reached its most recent cyclical
peak of 213.6 in February 2019 and falls
short of that by about 31% through June.
From peak to trough, Ingham notes, the
contraction lasted 23 months-February
2019 through January 2021-over which
time the Texas Petro Index declined
38.6%. The TPI, based at 100.0 in January
1995, achieved its all-time high of 314.0
in November 2014.
While some key activity metrics of
the recovery have been decidedly gradual,
Ingham observes, the fundamentals underpinning
stronger commodity prices
point to the likelihood of a more vigorous
industry upturn on its way.
The Big Picture
The first leg of the downturn began
late in the first quarter 2019 as lower
crude oil prices compared with 2018
pushed activity levels downward for the
balance of the year and into the first quarter
2020, Ingham says. The COVID-related
declines began in March 2020, he adds,
with much steeper monthly TPI declines.
" The 2019 contraction was no minor
event, with significant declines in activity
and about 20,400 jobs lost in the Texas
upstream sector, " Ingham reports. " But
that paled in comparison to the COVID
decline in 2020 during which the statewide
rig count dropped to unprecedented lows
and another 61,000 Texas oil and gas exploration
and production jobs were lost
between February and September. "
According to Ingham, after falling well
below $10 a barrel in April 2020, crude
oil prices began to recover in the second
half of the month, but did not return to
70 THE AMERICAN OIL & GAS REPORTER
early 2020 levels until January-February
2021. The statewide rig count, having
reached 533 on average in fourth quarter
2018, ultimately declined to an average of
105 in August 2020, and a weekly low of
100, the lowest levels on record since
Baker Hughes began counting rigs in 1944.
Even though prices and other measures
of activity declined in 2019, Ingham indicates,
Texas crude oil production continued
to increase through March 2020,
eventually peaking at a record 5.4 million
barrels a day. During the next two months,
however, production dropped more than
1 million bbl/d before beginning to slowly
increase once again in June of last year.
According to Ingham, Texas upstream
oil and gas indicators through June 2021
reveal a slow but steady recovery:
· Posted West Texas Intermediate
crude oil prices averaged $67.39 in June,
up from a low of $14.68 in April last year
and the highest since November 2014.
· Natural gas prices averaged $2.99
an MMbtu in June, compared with $1.07
in March 2020, and the highest since
January 2018, with the exception of spiking
natural gas prices in February 2021
associated with Winter Storm Uri.
· The statewide rig count improved
to 219 in June, compared with the average
of 105 in May 2020.
· Slightly more than 4,000 original
drilling permits were issued through June,
compared with 3,793 in the first six months
of 2020. By contrast, nearly 7,200 permits
were issued January-June 2018 before
the numbers began to decline in 2019.
· Estimated Texas crude oil production
averaged 4.82 MMbbl/d in June.
That means about 418 MMbbl/d have
been added back to statewide production
of the more than 1 MMbbl/d lost from
March to May 2020.
· Direct upstream employment in
Texas (operating and producing jobs, oil
field service jobs and drilling company
jobs) climbed back above 160,000 in June.
That suggests the addition of about 14,200
of the nearly 81,500 jobs lost during the
course of the entire contraction.
The pace of the recovery has been especially
evident in the rig count and industry
employment, Ingham relates. Even
with crude oil prices topping $70 a barrel,
the rig count has increased at a snail's
pace, he acknowledges, and the same is
true of upstream oil and gas employment.
Even so, Ingham adds, operators have
been able to add back lost production
from 2020 without adding rigs in large
chunks and drilling new wells.
First, he notes, operators have restarted
wells they shut down during COVID.
Additionally, he continues, wells that
were drilled previously but not completed
are being completed and brought on line.
The drilled but uncompleted well inventory
has fallen nearly 35% during the last
year in the Permian Basin and about 31%
in the Eagle Ford.
Ingham also points to a cautious recovery
from an unprecedented downturn
in cause and scope, along with the oftdiscussed
capital discipline on the part
of operators and changing investor sentiment
that focuses more on return on investment
as opposed to rapid expansion
of reserves with a potential future payoff.
Nevertheless, he indicates, production
increases so far have been temporary in
nature, and operators eventually will turn
to higher rates of drilling to meet the demand
that rising prices imply. That, in
turn, will boost labor demand in Texas'
upstream sector.
" Texas oil and gas producers understand
the message behind higher prices
for crude oil and natural gas, and that is
to provide additional product to the marketplace
if possible. Texas and U.S. independent
oil and gas producers have
proven time and time again that it is possible, "
Ingham reflects. " If prices continue
to climb and operators do not respond by
drilling more wells and pushing the rig
count upward, it would be the first time
ever that that would be the case. "
For that reason, even in the current unstable
political climate, the Texas upstream
oil and gas economy should reflect continued
improvement with greater momentum in
the second half of 2021, Ingham concludes
The Alliance notes that the TPI 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 Alliance further adjusts
the estimates to filter out mining jobs in
Texas that are unrelated to oil and gas.
The headline upstream oil and gas estimates
are revised only once a year, which means
that the data often becomes inaccurate
during times of rapid employment gain
or loss.
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American Oil and Gas Reporter - August 2021

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