13
Feature
Even though Texas has four major basins
where production has boomed, oil-related
activity is concentrated in the Permian
Basin in West Texas and the Eagle Ford
in South Texas
(Chart 2)
. These two areas
account for more than 80 percent of the
oil produced in Texas. The Barnett and
Haynesville regions, on the other hand,
produce primarily natural gas. Low oil
prices, therefore, will more significantly
impact drilling activity in West and South
Texas. They will also negatively affect
royalty payments to landowners more
significantly in those areas, affecting
local residents’ incomes and, potentially,
reducing spending in the area.
Break-even prices—estimates for what oil
prices must reach to provide a reasonable
return on investment—also vary across
basins, both within Texas and across the U.S.
Factors influencing break-even prices include
well productivity, drilling costs and the
presence of other hydrocarbons besides oil.
Studies tend to find higher breakeven prices
in the Permian Basin and relatively lower
ones in the Eagle Ford and the Bakken
Shale in North Dakota. They also find
significant variation in break-even prices
within a given basin. Although no hard
data exist for Texas, a recent study by North
Dakota’s Department of Mineral Resources
showed that break-even prices in different
counties in the Bakken ranged from $28 to
$85 a barrel, with an average of $56.
4
These findings suggest diminished
drilling in all major plays, since each
will have specific areas with high
break-even prices. The Permian is most
susceptible to a slowdown. Indeed, the
basin lost over 200 rigs from the first
week of December to the last week of
February, significantly more than in the
Eagle Ford or the Bakken.
Finally, metropolitan areas also will be
impacted to different degrees because some
rely on energy jobs to a greater extent than
others
(Chart 6)
. Places such as Midland,
in the Permian Basin, and other areas more
reliant on oil and gas employment are
more likely to feel the brunt of the negative
impacts. Houston, where almost 25 percent
of all jobs in Texas are located, is the most
exposed among major metropolitan areas,
with almost 3.8 percent of area jobs related
to mining. On the other hand, cities such as
El Paso and Austin have comparatively less
exposure and may even benefit from falling
oil prices.
Negative Effects for 2015
The oil and gas sector inTexas has grown in
relative importance in recent years, but by
most metrics the state is not as dependent
on the sector as it was in the early 1980s.
Despite this, research suggests that lower
oil prices will negatively affect the Texas
economy, with one model predicting that
about 140,000 jobs could be lost statewide.
Although this is a large number, it is
not expected to bring net job growth to
a standstill, given recent employment
expansion inother sectors of the economy.
Most susceptible to the downturn are
areas of the state with high oil production
and with numerous oil-related jobs.
However, the overall impact will also
crucially depend on just how long oil
prices remain depressed, a difficult thing
to predict given the uncertain and often
volatile nature of oil prices.
Plante is a senior research economist in
the Research Department at the Federal
Reserve Bank of Dallas.
This article first appeared in the First Quarter
2015 issue of Southwest Economy and is
reprinted with permission.
Notes
1
The employment share is the number of jobs related
to oil and gas production divided by total nonfarm
employment, which includes all jobs in the private and
public sectors except those related to agriculture.
2
The share is calculated as the sum of nominal gross domestic
product (GDP) in oil and gas extraction and support activities
for mining divided by total nominal GDP for the state, using
publicly available data from the Bureau of Economic Analysis.
3
Details can be found in “The Shale Gas and
Tight Oil Boom: U.S. States’ Economic Gains and
Vulnerabilities,” by Stephen P.A. Brown and Mine K.
Yücel, Council on Foreign Relations, October 2013.
4
See “North Dakota Discloses Break-Even Prices,”
Oil Daily, Oct. 17, 2014.
