The Energy Information Administration (EIA) recently released data showing that Texas reached an oil production level of 2.7 million barrels per day in September 2013, which is the highest level since they started keeping track in 1981. Considering some industry experts find the cost to drill for shale oil is in a wide range averaging approximately $85 per barrel, the nominal WTI oil price has been near or above this cost since 2009, which sends a strong signal to oil producers this was a profitable endeavor.
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This new data not only confirms that Texas is the top oil-producing state, but Texas dominates the nation’s competition. According to the figure below from the EIA, Texas produces approximately 3 times more oil than North Dakota and almost as much oil as the next 6 top oil-producing states combined. There is little doubt the Lone Star State continues to leave the competition in the dust.
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If we compare the world’s oil-producing nations and consider Texas a country, the Lone Star State would rank the 10th highest oil-producing nation in the world! Mark Perry, author of the Carpe Diem blog, notes that if the current trajectory of oil production in Texas continues, Texas’ world ranking could rise to 5th or 6th in the next few years.
Sustained higher levels of oil production in Texas will also contribute to more funds in the state’s Economic Stabilization Fund (ESF). According to the state’s constitution, each fiscal biennium the ESF is capped at 10 percent of general revenue during the preceding biennium, excluding investment income, interest income, and amounts borrowed from special funds. From the Legislative Budget Board’s calculations, funding from oil and gas tax revenue could reach 81 percent of the cap (see figure below). However, with the meteoric rise in oil production in the state, this estimate is likely to be below reality, meaning revenue is likely to be closer to the cap.
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Prices are vital to a well-functioning market. In the case of the Texas’ oil market, the high price of oil has sent a clear message that drilling for shale oil is profitable, which has benefited oil and gas businesses and Texans alike. Although the state has diversified greatly from its dependence on oil production during the 1980s, the oil and gas production boom will continue to shine brightly in the state that leads the nation in job growth from the Texas model.
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