Texas oil prices are up, but production is down
At least on dry land, the days of the big oil strike are long gone in Texas. While the oil still flows, it's the small producer that is driving the industry. The big names have been selling wells to smaller companies, according to Frank Tomicek of the Texas Railroad Commission, the state agency that regulates the oil industry in Texas.
"With production volumes declining, major oil and gas production companies have steadily been selling off producing asset properties in the state because of this rise in marginal operating cost," Tomicek said.
He added that small and mid-size operators are assuming production roles in some of these areas, and they may actually be able to operate more efficiently even with decreased production volumes since their cost of operation is significantly lower than that of larger companies.
There were about 6,000 small and mid-sized operators in the state in November 2003, which is 1,700 fewer than in 2001, according to Alex Mills, president of the Texas Alliance of Energy Producers (TAEP), a trade association for independent oil and gas producers.
Fewer operators does not mean fewer rigs, though. Mills said these small and mid-size operators may be responsible for driving the number of drilling rigs to its highest total in years. TAEP reported the total Texas drilling rig count at 473 in November 2003, up from 339 in November 2002 and 255 in November 1995.
Growth and decline
Production of Texas crude peaked in 1972 at 3.45 million barrels per day then began a steady decline that, up to now, had seemed irreversible, Mills said.
"We've been on a [yearly] decline in production for a number of years of about 2 percent or so," Mills said. "We've been trying to reverse that trend, but to date we have not been able to do so."
Mills said Texas is still the largest producer of oil in the U.S. and is also the largest consumer. Mills expects consumption to rise and hopes that will pull its partner--production--up with it.
"As the economy gets better, consumption is going to rise," he said. "We'd hope that production would rise with it."
In the meantime, Mills said Texas oil continues to play a major role in the state's economy, contributing about $2 billion in overall economic impact in 2001.
Highs and lows
Oil prices have seen both the high side and the low side in the last 10 to 15 years. According to Texas Comptroller Carole Keeton Strayhorn, the taxable price per barrel of oil reached as high as $34 in 1990; fell as low as $9.20 in 1999; and rose back up to $34 in March 2003. By September 2003, the price per barrel had dipped back below $30 but was the highest for a September price since 1999.
Steve Howell, an independent producer and owner of Howell Oil and Gas in Marshall, Texas, said the smaller producers need a place to sell what they produce.
"My concern is access to markets," he said. "It's easier for larger entities to attract markets than it is for smaller producers who are drilling one to five wells at a time."
The higher prices are keeping the oil industry revenue stream flowing fairly consistently, though at slightly lower levels from year to year. As production dipped from more than 50 million barrels per month in 1990 to fewer than 30 million barrels per month in 2003, production tax revenue has averaged between $29 million and $32 million per month since 2000, according to Strayhorn.
"Things are looking pretty good," Howell said.