Oil price decline keys erosion of oil and gas activity in Texas

HOUSTON — The Texas Petro Index declined in October from the record score achieved a month earlier, a trend reversal that could signal the beginning of the end of a sustained expansion of state oil and gas exploration and production (E&P) activity that has been shielding the Texas economy from the national recession, according to the Texas Alliance of Energy Producers, the nation's largest state association of independent oil and gas producers.

"The upstream oil and gas expansion since fall 2002 has tripled the industry's share of the total Texas economy, added tens of thousands of high-paying jobs to Texas payrolls, and contributed billions of dollars to the state's tax coffers," said petroleum economist Karr Ingham, who created the Petro Index in 2003. "The October Petro Index (at 282.0) is still the second highest on record.

"But if the slowdown of the Texas E&P economy as represented by the Petro Index continues in coming months, that could erode the buffer that the upstream oil and gas industry has been providing for the economy of this state."

A composite index based upon a comprehensive group of upstream economic indicators, the Texas Petro Index in October declined to 282.0 from a record 282.3 in September 2008, nearly 44 points higher than the composite score of 238.2 reached in October 2007. At its most recent low ebb, the Petro Index declined to 116.8 in August 2002 before beginning its unprecedented six-year climb.

Crude oil prices across Texas during October led declining indicators, notching the first year-over-year decline since wellhead prices began dropping last summer. However, other indicators appeared unfazed:

*The Baker Hughes rig count in Texas averaged 925 during October, 9.9 percent more than in September 2007; the year-todate average through October was 905 rigs, about 9.6 percent ahead of the pace a year ago.

*The Railroad Commission of Texas issued 2,693 drilling permits during October, 55 percent more than the 1,737 permits issued in the same month last year; permits issued year-to-date through October totaled 21,330, 26.7 percent more than during the first 10 months of 2007.

*About 226,600 Texans were employed in the Texas oil and gas industry during October, 7.9 percent more than the same month in 2007. Texas oil and gas employers added 600 net jobs during October 2008. Industry employment in September 1995, the base year of the Petro Index, totaled about 149,300.