What Makes Texas Unique and Great

Last Friday I had the privilege of appearing on “Countdown to the Closing Bell,” Liz Claman’s program on Fox Business. When asked if I was nervous that stocks are heading too high, I said that I’m very bullish. All around the world, exports are up, GDPs are up and the global purchasing manager’s index (PMI) is up.

Oil prices continue to remain low, however, thanks in large part to the ingenuity of Texas fracking companies. As I told Liz, this has served as a multibillion-dollar “peace dividend” that has mostly helped net importing markets, including “Chindia”—China and India combined, where 40 percent of the world’s population lives—Japan and the European Union.

What Makes Texas Unique and Great

I can’t emphasize enough how impressive it is that Texas shale oil producers continue to ramp up output even with crude remaining in the $50 per barrel range.

This underscores their efficiency and innovation in drawing on oil reserves that were largely out-of-reach as recently as 10 or 12 years ago. What’s more, common law property rights here in the U.S. benefit mining companies in ways that simply can’t be found in Latin America and other parts of the world that operate under civil law.

According to the Energy Information Administration’s (EIA) most recent report on drilling productivity, total U.S. shale oil output is expected to climb above 6 million barrels a day for the first time in September. The biggest contributors are Texas shale oilfields, which will exceed 4 million barrels a day. West Texas’ Permian Basin alone represents nearly 400 percent of these gains, according to research firm Macrostrategy Partnership.

Drilling productivity up in Texas shale regions despite lower oil prices
click to enlarge

The typical Permian well remains very profitable even with $50-a-barrel oil, according to Bloomberg New Energy Finance. The research group estimates that oil would need to drop below $45 a barrel for some Permian wells to become unprofitable.

Christi Craddick, the Texas Railroad Commissioner, praised the Texas fracking industry in her address at the annual Panhandle Producers and Royalty Owners Association (PPROA) meeting this week. She noted how essential shale oil producers are to the Texas economy, adding that despite the downturn in oil prices, “the Texas oil and gas industry has shown extraordinary resilience.”

“When times were tough, the industry did what it does best—innovate,” she said. “Because of your ingenuity, we’re seeing industry growth today despite the price of oil.”

Again, it’s this ingenuity that’s kept oil prices relatively low, which in turn has helped strengthen GDPs in oil-importing emerging markets and squeeze the revenue of exporters such as Russia, Qatar, Saudi Arabia and others.

Texas-based oil and gas exploration company Anadarko Petroleum was one of the top performing natural resource stocks this week, gaining more than 12 percent. The surge came on the heels of the company’s announcement that it approved a $2.5 billion stock buyback program.