Texas’ oil and gas industry expands to near-record levels

All signs pointed to a slowdown in the state’s oil and gas industry last year, but Texas production instead intensified to near-record levels, spurred by higher-than-expected oil prices driven by overseas turmoil, a new industry report shows.

Statewide crude oil production is now poised to surpass its 1972 all-time high within two years, said Karr Ingham, an economist for the Texas Alliance of Energy Producers.

“It looks to me you’d have to have a fairly dramatic set of circumstances to prevent that from happening,” he said in a presentation  at the Petroleum Club in downtown Houston.

Karr Ingham (For the Chronicle/Gary Fountain)

Karr Ingham (For the Chronicle/Gary Fountain)

Ingham painted a much rosier picture than he did last year when he projected that falling oil prices would put the brakes on the state’s rapidly growing industry.

Instead, fears that political unrest in Ukraine, Russia and Iraq could disrupt global oil supply have pushed oil prices above $100 a barrel, fueling a flurry of activity in Texas oil fields and continuing a nearly five-year trend of growth and expansion propelled by technical advances in oil field production.

U.S. benchmark crude closed down $1.05 to $102.07 a barrel in New York Mercantile Exchange trading on Thursday, after ticking up Wednesday when the Energy Department reported a larger-than-expected drop in U.S. crude inventories.

Stronger crude prices pushed the Texas Petro Index to 308, a record high. Developed by Ingham, the index measures job numbers, rig activity and production totals across nearly two decades.

Ingham said growth has “returned with a vengeance” in 2014, reflected in the across-the-board uptick in the state’s exploration and production activity.

The number of active oil and gas rigs in Texas rose to 891, up 6 percent from the same time last year and total oil and gas employment spiked to record levels of 297,800,  according to the index.

And those numbers don’t take into account the full impact of the industry’s job expansion, Ingham said.

Contract workers who are not on the payrolls of oil and gas companies aren’t counted as part of the energy industry in the Texas Workforce Commission numbers, which means the industry likely is having a much broader economic ripple effect on the state’s economy than the data show, Ingham said.

“The president wants to crow about job growth, he needs to get up every day and say, ‘God bless Texas,’ because that’s where it’s coming from,” Ingham said.

The oil and gas industry contributes about 25 percent of all taxes collected by the state, Ingham said.

While crude oil largely is driving the growth — about 92 percent of active rigs in Texas are drilling for oil — gas production has also increased, albeit mostly as a byproduct of oil production, Ingham said.

Although lower natural gas prices have led to a declining focus on gas exploration efforts, companies continue to capture the what is called casinghead gas from crude oil wells, propping up production even as the number of gas completions in Texas fell by 22 percent from a year ago to 316, Ingham said.

If the U.S. were to lift restrictions on exporting crude oil and liquefied natural gas, the price of domestic benchmark crude likely would rise, Ingham said. That’s a big benefit for domestic producers and, Ingham argued, would boost the state’s economy, as well, as higher prices add further incentive for companies to add jobs and expand oil patch activities.

“When oil companies get richer, they don’t pocket their money,” Ingham said. “They invest in future projects. They drill. They pay people. That’s how economic growth is generated.”