Texas oil and gas boom may help ease state budget crunch

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.