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.[1] 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.[2] 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.[3]

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.[4] Clearly, dependence on oil is a regional phenomenon. Moreover, the metropolitan areas of Dallas and Austin are economically anchored by scores of industries.