When Oil Falls So Does Texas…Or Does it?
Historically, Texas was the epicenter of the oil industry within the United States and served as one of the nation’s first areas of commercial drilling activity with the discovery of the Spindletop well outside of Houston in 1901. While Texas has certainly benefited from its vast reserves of oil and gas, the volatility of the industry led the state’s economy, especially metro areas like Dallas and Austin, to diversify away from oil-dependence over the past century.
Today, oil and gas account for roughly 9 percent of the state’s GDP, but this figure is disproportionate to employment within the state. In 2018, oil and gas extraction only accounted for 1.5 percent of all Texas employment. This is a long way from the peak of 5.12 percent in 1982, before the mid-’80s oil crash that decimated producers in Texas. While the 1980s proved a difficult time for the Texas and U.S. economy, this crash forced the state to diversify away from the industry. As a result of the most recent oil crash in 2014, Texas has never been better positioned to withstand production cuts.
When prices fell from over $100 per barrel to under $60 in 2014, Texas producers responded by cutting employment; most of these employees never returned. According to the Baker Hughes Rig Count, the number of active rigs fell by nearly 75 percent from 2014 to 2016. In the past four years, employment in oil and gas extraction has fallen over 20 percent throughout Texas. As producers faced pressure to cut expenditures to combat falling prices, operational efficiency soared. In 2008, the Texas oil industry produced roughly 2,000 barrels of crude per worker; a decade later and this figure is well over 6,000 barrels per worker.
While new operational efficiencies and increased scrutiny on capital expenditures within the oil industry prepared the sector for downturns, we must consider the regional employment figures throughout Texas to understand how an oil crash affects specific areas. Most employment in the oil industry is concentrated around the Permian Basin of West Texas and in the south-central part of the state. Counties within these regions are almost completely dependent on the oil industry. For example, Midland County in western Texas attributes nearly 30 percent of its total employment to oil, gas, and mining.
In contrast, Harris County, home to the corporate epicenter of oil in Houston, attributes only 2.8 percent of total employment to the industry. Dallas County is a mere 0.5 percent and Travis County, home to Austin, comes in below the U.S. average share of employment at a measly 0.3 percent. Clearly, dependence on oil is a regional phenomenon. Moreover, the metropolitan areas of Dallas and Austin are economically anchored by scores of industries.
As the largest metropolitan area in Texas, DFW takes the top spot for economic activity within the state as well. DFW is home to the corporate headquarters of forty-two Fortune 1000 companies and hosts three of the Global 20 companies, rivaling Beijing as the only other metro in the world to make the same claim. Some of the companies headquartered in Dallas include telecom giant AT&T, paper consumer goods powerhouse Kimberly-Clark, and healthcare juggernaut McKesson. The low cost of living, business-friendly environment, and easy access through DFW International Airport will continue the corporate convergence to the Dallas area.
Although Austin cannot boast the same enormity of economic activity as Dallas, DFW’s smaller sibling to the south is experiencing a remarkable growth spurt. The Austin metro area led the nation in population growth for the past eight consecutive years, and in seven of the past ten years, Austin took the top spot on Forbes’ annual list of America’s Fastest-Growing Cities. Much of this growth can be attributed to the burgeoning tech industry. Dell Technologies, Amazon, IBM, Apple, Oracle, Samsung, and Facebook employ a total of over 42,000 workers in the metro area. The tech industry, along with the rest of the Austin economy, can find an ample supply of young and highly educated workers flowing from the halls of the University of Texas at Austin, home to over 50,000 students. As the global economy evolved toward informational services, so has Texas. Together, Dallas and Austin enter the new decade not as trading outposts bound by oil of old, but as economic magnets drawing in the world’s best and brightest.
Bureau of Labor Statistics. The chart illustrates the total percentage of the Texas civilian labor force working in non-farm industries.
Houston Chronicle on increasing operational efficiency: www.houstonchronicle.com/business/article/Texas-producing-more-oil-with-fewer-people-rigs-12826811.php
Bureau of Economic Analysis (BEA):
Historical Perspective on oil dependency in Texas from Dallas Fed (2011):
D Magazine’s Article on Economic Diversity in Dallas: