Texas has diversified its economy since the last oil bust, but with prices now down nearly two-thirds from the all-time high, there could be a big financial impact in America’s biggest oil-producing state. The fallout is expected to be felt from the oil patch dinner table to the state capitol.
Oil dipping below $50 a barrel may be good news at the gas pump, but there’s a downside looming: layoffs in the Texas oil field and beyond.
Bernard Weinstein, associate director of Southern Methodist University's Cox Maguire Energy Institute, says it looks like a rough time ahead.
“I saw one report suggesting that over the next year about 25 percent of all the oil and gas field workers in Texas may lose their jobs, if prices stay below $50,” Weinstein said.
He says a worldwide glut of oil and diminished demand in struggling economies like Europe, Japan, China and India combine to push prices down. When prices drop, drillers cut back. And that ripples through the oil fields of Texas and other states to the companies that service the industry.
“The oil and gas industry out there in the field maybe employs ... 400,000 people," Weinstein said. "But there are 9 million people nationwide whose livelihoods depend on what happens in the oil and gas industry.”
U.S. Steel just announced the closure of a plant in Ohio and pink slips for nearly 200 people at its processing plant near Houston. Drillers don’t need as much of the steel tubing the company makes. Last month, Hercules Offshore of Houston said it was cutting 300 jobs or 15 percent of its workforce. The federal Bureau of Labor Statistics say Texas lost 2,300 oil and gas jobs in October and November.
Laurie Larrea heads Workforce Solutions in Dallas. She says Houston and Midland-Odessa will see the biggest job losses. She says Dallas-Fort Worth hasn’t received notice of oil price-related layoffs, but could.
“Anyone that’s in the supply chain, anyone who’s a vendor that’s primarily dedicated to the oil and gas industry, they may see an effect,” Larrea said.
If that happens, it could be a life-changer. Brent Christopher, president and CEO of Communities Foundation of Texas, says 40 percent of Dallas-Fort Worth residents are considered "asset poor" with next to no financial safety net.
“They really live on the knife’s edge," Christopher said. "They are one job loss away from falling into traditional poverty.”
Christopher expects his organization to see a significant uptick in the number of requests for help from social service agencies if there are widespread layoffs later this year.
He does not expect the oil dive to hurt philanthropy. He says those who support his foundation have diverse portfolios and are dedicated to giving back during a financial crisis.
The petro plummet could put the crunch on the state government. Weinstein says the budget is going to be in a jam.
“Last year, we got about $4 billion from oil and gas severance taxes. So if prices in 2015 are half what they were in 2014, that means were going to lose half of that revenue. So that’s $2 billion that’s gone away," Weinstein said. "Not to mention all the sales tax revenues that are derived from the oil and gas industry.”
State comptroller Glenn Hegar warned that plunging oil prices is casting uncertainty on the state budget.
"We are ... well aware that oil prices have dropped significantly in recent months," Hegar says. "These lower prices will likely lead to a significant slowing in oil exploration and production and thus has dampened our overall economic forecast for the coming biennium."
Weinstein says there is some good news for Texas, beyond low gas prices at the pump. Because the state’s economy is so much bigger and broader now than it has been in previous decades, he sees little risk of an '80s-style oil bust.