Oil, gas industry continues to shrink, but there are signs of hope

Texas’ oil and gas industry continued to shrink in the first half of 2016, but improving commodity prices and increasing rig counts and requests for drilling permits may be signs that the oil patch may be on the rebound, according to a statewide industry index released Monday.

The Texas Petro Index shows crude oil prices averaged $45.19 per barrel in June, the fourth straight monthly increase since the average price fell to a low of $27.08 in February. In response, the state rig count in June was higher than the previous month for the first time in two years, and the state issued 656 drilling permits, a 28 percent boost from February.

The job loss rate in the industry also slowed in June, with an estimated 900 jobs cut by oil and gas companies, according to the index, which was developed by petroleum economist Karr Ingham for the statewide Texas Alliance of Energy Producers. Back in January and February, the state was losing thousands of jobs a month.

While Ingham is seeing “cautious optimism” in the oil patch because of these indicators, he warned about becoming overly confident. He said even at rock bottom, Texas oil production declined only 5 percent in the first half of 2016, contributing to the oil glut that continues to suppress prices.

“Nobody, but nobody, knows what the price of oil will be in the future,” Ingham said. “I think it is more than likely that we will see some growth in the oil and gas business from this point” but it all will depend on the price of oil. “We’re not out of the woods yet.”

And as far as employment, for example, there is typically a six-month lag from when prices start to rebound and stabilize before drilling companies start to employ people again, he said.

“Virtually nothing in this cycle that would correct the current contraction has occurred quickly or within the time frames that many had forecast,” Ingham said. “The sharp price decline and resulting industry downturn was the direct result of market imbalance and rising crude oil supplies.

“Concerns about these very things remain in place, and there is presently no great sense that the difference will be made up on the demand side. While the end may be near in terms of TPI decline, there is every chance that the recovery ahead will be frustratingly slow.”

Among the other highlights in the Texas Petro Index report for the first half of 2016 are:

▪ The statewide working rig count averaged 222, a 55.9 percent decrease when compared with the first six months of 2015 when an average of 504 rigs were drilling. In the first half of 2014, the number of rigs working in Texas averaged 869.

▪ The Texas Railroad Commission issued 3,539 drilling permits, 36.4 percent fewer than in 2015.

▪ Oil producers pumped about 603.9 million barrels of crude oil, a 5 percent, year-over-year decline compared with the 635.4 billion in the first half of 2015.

▪ About 213,050 Texans were employed in the oil patch in the first half of the year, a 22.6 percent drop from the same period last year. In the first half of 2014, the number of people employed in oil and gas production, drilling and service sectors was 291,365. At its peak in December 2014, the industry employed 306,000 in December 2014.

This story was originally published July 25, 2016 at 3:52 PM with the headline "Oil, gas industry continues to shrink, but there are signs of hope."