Will Texas reel under oil price drop?

Let’s face it: Texas has let itself get overconfident, for what must be at least the millionth time, about its oil and gas wealth.

World markets are showing us, for the equally millionth time, how risky that is.

Fortunately, our state’s economy is more diversified than it has been in previous energy declines.

The current drop probably won’t hurt as bad as, say, the similar declines in 1985-86 and 1990-91.

But the current declines are severe, especially for oil, and they will hurt.

Oil prices began dropping in June and are down 45 percent this year, Bloomberg reported Tuesday.

The news service said the highest U.S. oil production in more than three decades has contributed to a global surplus estimated by Qatar at 2 million barrels a day.

U.S. producers are scaling back on drilling. That hits home in Texas, where drilling in the Permian Basin of West Texas and the Eagle Ford Shale of South Texas has been at the forefront of the national boom.

Oil-field services company Baker Hughes said the U.S. onshore drilling rig count fell by 35 last week to 1,840, including oil and gas rigs.

That’s the third consecutive weekly decline and one of the sharpest since summer.

In Texas, the number of active rigs dropped by 16, to 852.

A monthly survey released Monday by the Federal Reserve Bank of Dallas showed that business executives still feel good about broad economic conditions.

But comments from executives, none identified by name, showed a building level of caution about the oil price drop.

One comment called the drop “a surprise,” and another executive said it “is going to make things ugly … quickly.”

Exactly what “ugly” means, and how quickly that might occur, is unknown.

The New York Times reported Friday that growth in nonenergy jobs in Texas, in sectors such as healthcare, biotechnology and software, cushions the impact of energy declines.

“Oil and gas jobs make up only about 3 percent of non-agricultural jobs in Texas” today, The Times reported, “a far lower share than government (16 percent) and education and health services (13 percent).”

That diversity could put a different spin on oil’s drop, as plummeting prices at the gas pump translate into increased overall spending power for people in jobs not tied to oil and gas.

But where’s the tipping point?

Has the Texas economy really come so far that oil prices down by half are not a net negative?

Glenn Hegar, the Republican ex-senator from Katy, is the man who is supposed to know — at least in a few more days.

Hegar was elected Nov. 4 to be the state’s new comptroller of public accounts. He’s scheduled to take the oath of office Friday.

It will be Hegar’s job to tell the Legislature exactly how strong the state’s economy will be for the next two years and what that will mean for state revenue.

His new office comes with a staff that has been working on this question for some time.

But the oil price drop is both deep and recent, so Hegar will have to scramble.

He’s scheduled to deliver the numbers, called the Biennial Revenue Estimate, on Jan. 12.

That’s the day before the Legislature convenes for its 140-day session.

Lawmakers must adopt a two-year budget, and it must balance. They can’t spend more than what Hegar tells them the state can cover with available revenue.

If the estimate turns out to be low, as was the case in 2011, entire budget sectors like education, transportation and healthcare will suffer from unnecessary spending restrictions.

If the estimate is too high, agencies will have to scramble months from now to cut spending.

Despite the state’s newfound economic diversity, a lot of its money is tied directly to oil and gas.

The Permanent School Fund, a source of money for public schools, gets much of its revenue from the sale of minerals on state lands.

In November, Texas voters agreed to dedicate part of state revenue from oil and gas taxes to help improve highways.

Texas can’t escape the influence of its oil and gas wealth — and wouldn’t want to. We just have to be very careful not to take it for granted.

This story was originally published December 30, 2014 at 5:48 PM with the headline "Will Texas reel under oil price drop?."