For Now, Texas Economy Shrugs Off Low Oil Prices

_{*Correction appended.}

Just one short year ago, Texas drilling country rumbled with activity and high expectations that the good times would last a long while.

So much for that. 

Amid a plunge in oil prices, the bonanza has paused at the very least, wiping out thousands of jobs in the oilfields and communities dependent on them.

A barrel of West Texas crude is selling near $40 these days, the lowest since 2009, when Texas was struggling to shake the effects of the global financial crisis. The state lost nearly 340,000 jobs that year, and its unemployment rate skyrocketed to levels unseen in more than two decades. 

Though anything can happen in the volatile world of oil trading, all signs point to a downturn that will be longer than many expected – including state revenue estimators.

But state officials aren’t sweating. The phenomenon has undoubtedly walloped oil-dependent communities in South and West Texas. But across the rest of the state, other business sectors are picking up the slack for an industry that no longer dominates the economy. And increases in production have kept oil and gas taxes flowing into Austin for now, even as prices drop.

“The comptroller does not want to diminish the impact that this has had on people’s communities and people’s lives,” said Chris Bryan, a spokesman for Comptroller Glenn Hegar.

But statewide? 

“You’re still seeing job growth, you’re still seeing revenue growth in sales tax, you’re still seeing people moving here,” he said. “And I think that is part of that story of Texas being not just an oil and gas state anymore.”

Growth, but slower

The stats back up the comptroller. The state economy is growing, though more slowly than it did amid the drilling boom.

In March, the state lost 25,400 jobs, ending a remarkable streak of 53 months of growth, according to state and federal data. Yet Texas turned around and added 33,200 jobs in May, and added more in each month since.

Last June, the state collected less sales tax revenue than it did in June of 2014, ending a 62-month growth streak. But in July, it edged out collections from a year earlier.

Oil and mineral-related revenue makes up 10 percent of the state’s total tax collections but less than five percent of the Texas budget, according to state records.

“The revenue estimate is the sum of various parts, and what we’re seeing with oil and gas is, it’s not doing real well, but the other parts are doing very well,” said Dale Craymer, president of the business-backed Texas Taxpayers and Research Association and a former revenue estimator in the comptroller’s office.

Wrong guesses on oil revenue – sort of

But in January, Hegar’s revenue estimate pegged taxable oil prices at between $65 and $75 per barrel through 2017. That’s far above where they are now, and far above where experts now expect them to linger, as supply stays high here and abroad and a mix of geopolitical factors – including a diplomatic breakthrough that could unlock Iran’s supply – threaten to keep it that way.

Last week, the federal Energy Information Administration lowered its price forecasts for the coming years. The agency now predicts that per-barrel prices will average $49 in 2015 and $54 the next year.

(Texas comptrollers are almost always wrong on oil price predictions. “There are two kinds of forecasters," said James LeBas, an economist with the Texas Oil and Gas Association and a former chief revenue estimator in the comptroller’s office. "There are those that don’t know – no, there’s just one kind.”)

Does that portend budget trouble in Texas?  Not necessarily, the comptroller and other experts say. So far, oil tax revenue has come in around where Hegar predicted, largely because Texas operators are pumping more oil than expected.

Wells drilled today produce far more oil than the conventionally drilled wells of years past (though the output of those wells trails off more rapidly). Operators now drill multiple wells on one site, and the rigs themselves are more efficient. Plummeting prices have only further driven operators to find new ways to eke out a profit margin.

Texas oil production was still rising through May, according to the most recent figures published by the state Railroad Commission, which regulates oil and gas.

“Today, we’re producing three times the oil we did 20 years ago,” Craymer said.  “We’ve got low prices on a much higher production base than we’ve had historically, so that might give us a cushion as well.”

Still, experts forecast even more layoffs and declining investment in the coming months — resulting in lower production — as contracts that were signed before the prices tanked expire.

That means less spending on equipment and other goods in the oil patch, taking a bite out of state sales taxes.

“We have had a very healthy economy and that’s help delay the impact of falling oil prices, but I think we’re still going to see even slower growth ahead than what we are currently experiencing,” said Craymer.

Next steps

With that in mind, the comptroller's office is still keeping a close eye on oil prices, and has an opportunity to revise its forecasts in the coming months as it certifies its revenue estimate – a process that takes into account the legislature’s most recent actions. 

“This is an opportunity to look at everything again,” said Bryan.

But even if that revision proves overly optimistic, the Texas budget may still escape trouble, because lawmakers left more $6.4 billion unspent in the budget Gov. Greg Abbott signed in June.  

“The question is,” said LeBas, “is the state going to stay in the black, and the answer there is yes.” 

Aman Batheja contributed to this report.