March 9 (Bloomberg) -- Texas’s Eagle Ford oil field on the southern prairie is boosting energy-tax revenue in the biggest oil-producing U.S. state, generating $40 million in receipts last year.
“This is a great addition to the state’s reserves,” said Dominique Halaby, who directs the University of Texas at San Antonio’s Community and Business Research Center and who has studied the field’s economic effects. It may yield another $800 million in state receipts, he said. “It’s a game-changer.”
As crude prices have surpassed $100 a barrel since turmoil in North Africa began toppling governments, U.S. states led by Texas, Alaska, North Dakota and Louisiana have gained from energy taxes that are tied to market prices. In Texas, that may provide relief for a deficit of as much as $27 billion. Oil futures touched $106.95 a barrel March 7 in New York.
“When you see $100-a-barrel oil, it will really create some upside for Texas,” said John Hallacy, Bank of America Merrill Lynch manager of municipal research in New York. “It can bring in new revenue.”
In Cotulla, a ranching town of about 4,000 people 90 miles (145 kilometers) south of San Antonio, trailer parks are full and campers have taken up every available space and vacant lot, said Bill Cotulla, 74, a native of the town named for his great grandfather. Oil workers compete for counter space and tables when he goes for lunch at one of the town’s restaurants, such as JJ’s Country Store, Cotulla said.
“If you want to get a seat in the restaurant, you go at 11 instead of 12,” said Cotulla, whose 145-year-old ranch house has three-foot-thick walls built to withstand Indian attacks. In a report last month, Halaby said the Eagle Ford field supported about 12,600 jobs in the area last year and produced almost $48 million in local-government revenue.
“The Texas economy is benefitting from higher oil prices,” said Mine Yucel, a senior economist at the Federal Reserve Bank of Dallas and co-author of a forthcoming report on the energy industry’s local effects. “There’s more jobs and more demand for services.”
Texas Comptroller Susan Combs, in a January revenue forecast, said her estimate of $72.2 billion for the 2012-2013 fiscal biennium, which begins Sept. 1, assumes stable crude-oil and natural-gas prices. She projected a reserve fund fed by energy receipts would reach $9.4 billion by August 2013, based on $80-a-barrel crude. Crude futures, up 66 percent from a 2010 low of $64.24, have averaged almost $92 a barrel this year.
Reserve Draw Down
The fund may be drawn down by as much as $4.3 billion to close a current-year deficit under a proposal pending in the House of Representatives from Jim Pitts, a Republican from Waxahachie who heads the appropriations committee. Pitts said March 7 that about 90 House Republicans favor his bill. The state also faces a projected deficit of between $15 billion and $27 billion in the two fiscal years that begin in September.
Neighboring Louisiana, the fifth-largest U.S. oil producer, also may benefit from higher production-tax revenue, said Greg Albrecht, chief economist in the Legislative Fiscal Office. Yet the increase won’t cover a deficit projected at $1.6 billion in fiscal 2012, he said.
Each $1 increase in the price of a barrel of oil for a year yields $12 million in tax revenue for Louisiana, Albrecht said. However, a drop in natural-gas prices and taxable production has more than offset oil revenue gains, he said. Natural-gas futures touched $4.87 per British thermal unit in New York Jan. 24 before falling to a 15-week low of $3.73 per Btu on March 4. The most-active contract ended yesterday at about $3.86 per Btu.
Still Not Enough
“With the increase in crude oil, things are looking better, but so many other things are offsetting it that you can’t see it,” Albrecht said. “Even if we get another $100 million, it isn’t going to solve Louisiana’s budget problem.”
California, the state with the biggest population and the third-largest U.S. oil producer, doesn’t tax energy production.
In Oklahoma, the sixth-largest U.S. producer, current fiscal-year revenue from energy-extraction taxes was up 12 percent through February compared with a year earlier.
Alaska, the second-largest U.S. oil producer, gets about 87 percent of its general-fund revenue from energy-extraction taxes. The Revenue Department projected receipts to reach about $4.7 billion this year on Nov. 26, basing the estimate on an average oil price of about $78 a barrel.
Since then, a rebellion in Libya, with the world’s ninth-largest crude reserves, sent Alaska North Slope oil spot prices up 43 percent to a high of $118.05 a barrel March 7. It averaged $92.56 in January, the highest level since February 2008.
North Dakota, the fourth-largest producer, will get $181,000 in additional daily revenue from each $5 increase in the price of oil, based on January’s output levels, said Cory Fong, the state’s tax commissioner.
“It’s not all good news because our agriculture producers have to pay higher prices for fuel and fertilizer,” Fong said. “It’s good news for state revenue but bad news for most of the people in the state.”
While the gains will help ease financial pressures on energy producers, it won’t cure underlying fiscal ills, oil-state officials and economists said. A sustained period of relatively high crude prices also may cut consumer spending and employment, offsetting gains from taxes on energy production.
“We don’t celebrate when gasoline prices are $4 and $5 a gallon,” said Alaska Governor Sean Parnell, a Republican, in an interview last month in Washington.
Oil at more than $100 a barrel for a sustained period will push up fuel costs to the point where consumers will cut back spending and that may erode U.S. gross domestic product, researchers at IHS Global Insight said in a Feb. 24 report.
A 30 percent increase in the price of gasoline to $3.60 a gallon may trigger reduced consumption, Natalie Cohen, a Wells Fargo Securities analyst in New York, said yesterday by e-mail.
“A reduction in vehicle miles driven could have consequences for gas-tax bonds and toll roads and put additional strain on municipal budgets that use the gas tax for road construction and repair,” Cohen said.
A rise in North Sea Brent crude of $15 a barrel for a year may cut U.S. GDP growth by 0.3 percentage point, Lexington, Massachusetts-based IHS said. Brent futures closed at $113.06 yesterday in London, after averaging about $84 in 2010.
“With the current prices, we would be looking at a surplus and good cash flows,” said Jerry Burnett, an Alaska Revenue Department deputy commissioner. “It’s definitely good for our budget, but it’s not good for our citizens. We are concerned about people having to pay more at the pump.”
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