NCPA - National Center for Policy Analysis

The Saudis Gambled and Texas Won

September 10, 2015

Although oil prices were falling in November of 2014, Saudi Arabia decided to maintain a high level of oil production. The rationale was that producers using more expensive extraction methods, such as hydraulic fracturing and horizontal drilling, would soon be in trouble due to the low prices. However, in 2015, revenue from Texas oil-production taxes reached nearly $2.9 billion, higher than projected even though oil prices were lower than originally estimated.

  • Texas produces 37 percent of all U.S. oil and 28 percent of natural gas.
  • Oil and gas production only account for 14 percent of Texas' gross state product.
  • Advancements in technology are reducing the cost of shale production with "octopus" wells supporting up to 18 horizontal shafts from a single vertical hole.

Oil prices will always fluctuate, but American innovation and talent continues to encourage greater efficiencies. Saudi Arabia hoped that by keeping prices low they could maintain their hold on a portion of the oil market and kill what some have called the U.S. energy renaissance. Fortunately for the United States. and for Texas, their prediction was incorrect and the U.S. continues to be a major contributor in international oil production.

Source:  Glenn Hegar, "The Saudis Gambled and Texas Won," Wall Street Journal, August 31, 2015.

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