The combined forces of high oil prices and improved drilling
technology have produced a gush of unexpected tax dollars from oil and
gas wells across Texas.
Six months into the state's budget year,
taxes paid on natural gas production are up 73 percent over the same
period last year, while revenue from the oil production tax is up 49
percent.
Together, oil and gas taxes so far have brought in a
total of $1.8 billion. That amounts to $684 million more than in the
first half of last year, which was a blockbuster year in itself with
$2.6 billion in oil and gas tax revenues.
And the state's most
important source of revenue — sales tax collections — has been far
exceeding projections, due in part to oil and gas companies' heavy
spending on equipment, supplies and services needed to drill new wells.
That
money is sparking hope that Texas will be able to plug at least some of
the $4 billion budget hole that lawmakers left last year.
"The
boom is great. It's not going to solve all of our fiscal problems, but
it is one heck of a down payment," said Dale Craymer, president of the
business-backed Texas Taxpayers and Research Association.
Industry
insiders say the upswing in production and revenue is sustainable
because technology rather than price speculation is driving the change.
Wary
state officials are still taking a cautious approach because they know
far too well the volatile nature of the oil and gas industry.
"If
there is one thing that has been true in my experience in the oil
business, it is that it is never a steady thing. It is either boom or
bust," said oilman and retiring Senate Finance Committee Chairman Steve
Ogden, R-Bryan. "We ought to enjoy the windfall, but don't count on it
indefinitely."
Money set aside
Oil and gas once fueled much of the Texas budget.
Thirty years ago, the production taxes paid by oil and gas operators amounted to about 24 percent of state tax collections.
A
price crash in the early 1980s sent Texas into a deep recession and a
downward fiscal spiral that forced state lawmakers in 1987 to enact
sizable budget cuts and tax increases.
That same year, they also
proposed creating an Economic Stabilization Fund — and voters later
authorized it — to be filled mostly by excess oil and gas production
taxes.
The original intent of that rainy day fund was to smooth
out the effects of big fluctuations in the economy by socking away money
from when times were good to spend when times were tough.
The
reliance on oil and gas taxes for state operations has since diminished
in large part because the economy is less tied to the industry.
Setting
aside tax dollars in the rainy day fund also helped to wean the state
off that money for ongoing expenses. Last year, those taxes accounted
for just 6.6 percent of the $39 billion in tax collections.
The
rainy day fund has grown fat as historically high oil and gas prices in
2007 and 2008 spurred a huge increase in production. The fund ended 2005
with $6.9 million. Five years, later it had $7.7 billion.
Legislators tapped the fund to close a $3.2 billion budget deficit last year but left about $6 billion untouched.
It
is expected to plump up even more because of soaring production in West
Texas' long-established oil patch as well as a relatively new play in
South Texas, the Eagle Ford Shale.
Technology opens supply
The
Eagle Ford Shale had long tempted oil and gas companies, but they
lacked a cost-effective way to access the vast reservoir of natural gas
until 2005, said Brian Sullivan, a petroleum engineer and lawyer in
Austin.
Technological innovations perfected in the Barnett Shale
of North Texas changed the equation so companies could drill in Eagle
Ford and make money, he said.
Across the country, it became
economical to drill in areas that were previously considered
unproductive because horizontal drilling meant wells could be bent to
reach the deposits and hydraulic fracturing could be used to loosen up
the oil and gas by injecting water, sand and chemicals into a well under
high pressure.
The vast new supply of natural gas has driven the
price into the cellar while oil prices have hovered around $100 a
barrel. Those prices have historically moved in tandem, with oil
generally 10 times that of gas. Today, oil is about 50 times the gas
price, Sullivan said.
Even so, companies have continued to invest
heavily in the Eagle Ford because many of the wells are producing
something other than the low-price "dry gas" used to light your stove.
The "wet gas" includes light oil called condensate and other natural gas
liquids that can be sold at prices near that of oil.