American Oil and Gas Reporter - March 2020 - 31

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2019 Stability Helps Sustain Industry
AUSTIN, TX.-According to the Texas
Alliance of Energy Producers' Petro
Index, the state's oil and gas industry
may be navigating some choppy waters,
but other recent storms have been worse
and the hull appears to be in good repair.
The analysis, which the Alliance unveiled
at the end of January, indicates that, unlike
the previous two industry contractions,
crude oil prices stabilized in 2019, which
helped sustain more industry activity than
otherwise would be expected. According
to the Alliance, this stability helped sustain
industry employment on the operating/producing side of the employment ledger.
The Alliance's Texas Petro Index was
first knocked off its growth track in the
fourth quarter of 2018 with sharp oil price
declines, "but then recovered in early 2019
before embarking on a sustained decline
for the balance of the year," assesses Karr
Ingham, the Alliance's petroleum economist
and creator of the TPI.
Ingham says the TPI achieved its cyclic
peak in February and declined for 10
straight months to finish the year at 193.6
in December, down 9.1% from the December 2018 TPI of 213.1.

"At the heart of the issue are petroleum
markets that are simply well supplied,
negating the need for higher prices that
would in turn push activity levels upward,"
Ingham says. "Even as prices, rig count
and well completions have declined, production has continued to increase." He
points out crude oil production in Texas
increased by an estimated 15% on top of
a 26% jump in 2018.
A Year Of Stable Prices
In 2019, the annual average West Texas
Intermediate posted price was 13% lower
than it was in 2018, but the Alliance's
TPI points out, after the sharp declines
in late 2018, prices recovered to above
$50 and held steady for the rest of 2019.
"It was simply a year of stable $53$54 oil, and while that is obviously not
the recipe for industry expansion, one
can easily imagine a scenario much worse
because we have seen it the past two
downturns," Ingham says.
Activity levels increased steadily
through October 2018, the TPI reports,
with crude oil prices climbing above $67
on average that month, and above $70

daily pricing earlier in the month. Crude
oil prices in 2019 were effectively $15$20 a barrel lower compared with those
peaks, it notes, adding that will always
push down rig counts, permits, completions
and industry employment. Other factors
weighed on activity levels, notably the
associated gas issues that only worsened
in 2019 as operators struggled to find
disposition solutions for their gas.
The Texas rig count averaged 463 in
2019, Ingham says, down 10% from 2018's
annual average of 514. December's average
rig count of 406 was down by more than
23% compared with the 531-rig average
seen in December 2018, he points out.
The number of drilling permits issued fell
more than 12% for the year, while crude
oil completions were off by 18%.
"Declining prices and activity levels
surely will affect Texas production, and in
fact have already done so by slowing the
rate of growth in statewide crude oil production," Ingham assesses. "But will production peak in the near term and decline
by a significant degree, which is the implied
outcome necessary to move crude oil prices
higher? Recent history says no."
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American Oil and Gas Reporter - March 2020

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