HOUSTON — November marked the end of a five-year long expansion of Texas’ upstream sector, which produced about 1.1 million barrels (MMbbl) of crude oil in 2014 alone, said Karr Ingham, an economist who developed the Texas Petro Index.
According to the index, which serves as a measure of the state’s crude oil production, 2014 production was the highest annual amount since 1977, capping off the 66-month time frame of expansion.
The five-year strong run—“the post-recession expansion of the Texas oil and gas economy”—began in 2010, and the amounts of crude oil produced steadily climbed from there. Now with the world, the nation and the state in a phase of upstream price contraction, the state’s upstream sector jobs, and concurrently its production, will be affected, Ingham said.
In 2014, 30,700 jobs were added to the sector. The sector’s jobs are divided into extraction—actual oil and natural gas production—and support activities—oilfield services, drilling services and contracting. During the last oil price downturn in 2008, about 130,000 support jobs were added, while about 80,000 extraction jobs and about 100,000 support jobs were added in 2009.
Ingham said that “at least” 50,000 sector jobs could be lost this time around, or even “potentially” as many as 250,000.
Support, which took over the lion’s share of sector employment in Texas, is “much more volatile” to market fluctuations and “was much more responsive” to the last downturn, Ingham said. This time around, he said, it will probably respond the same way. The painful blow to industry employment will likely occur “not to terribly far off into the future,” he said, noting that the Texas Workforce Commission predicted that it would occur by December.
What is noticeable now is the number of rigs being laid down across the country and the state. The state’s rig count has already peaked and declined, Ingham said, noting, “We’re shedding rigs in a hurry in Texas right now.” From a high point of 946 in September 2008, the number of rigs in Texas dropped to just below 300 in 2009. There was an uptick in May and June 2012, when there were 932. In January of this year, there were 773 rigs.
During 2008’s “record level of rig count over the history of the Texas Petro Index,” Ingham said 80% of the rigs drilled natural gas and 20% drilled crude oil.
At year-end 2014, the number of rigs finally declined, he said, after holding out strongly “even in the face of all of the decline right through the end of … November.” At year end, the number fell to about 850.
While putting rigs on pause has logically followed the price trail, Ingham said that the pattern of drilling permits has been somewhat confusing. “It’s an interesting story and it doesn’t quite make sense to me. Crude oil prices began to decline, of course, in July after peaking in June. The drilling permits number was actually on the rise for several months following that, and then in September and October of 2014 you can see that spike right there. So in those two months, over 3,000 original drilling permits were issued. [As far as I] can tell, it’s most ever issued by the [Texas] Railroad Commission in any month in all the history of the world.”
The news about the price drop is all about oil. But Ingham pointed out that even now, the price of natural gas remains an important metric. But in 2013 and 2014, natural gas production composed 25% of the total oil and gas production value.
Despite oil being the recent focus of producers, gas production has hung on due to “accidental” production, he said. “Natural gas off wells that were actually drilled for crude oil production is what’s propping up natural gas production in Texas.” This production is “doing a lot for our statewide economy, but it’s certainly not been an [exploration and production] E&P focus in recent years.”
The future of the upstream sector employment and production appears to be facing a steep drop in Texas, according to Ingham. Discussing possible causes of the current price crunch, he said OPEC “didn’t have the market power to keep price decline from occurring the first place,” emphasizing that it was not a sole cause.
Addressing a question on ways to fix the price crunch, he said that “lifting the export ban is not a panacea in terms of a rapid price recovery.” In order for the country’s crude oil to positively affect global costs, he added, “billions and billions” of barrels would need to be exported.
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