The state of Texas experienced peak oil production in 1972. But production dwindled through to the early 2000s until January 1999 when it doubled to over 39 million barrels. For 2019, 1.85 billion barrels were produced across the state of Texas, marking the highest year of oil production in the history of the U.S. According to the Energy Information Administration (EIA), oil production in the U.S. was 12.23 million barrels of oil per day. This makes Texas's contribution to the nation's oil production very sizeable.

Key Takeaways

  • Texas is one of the largest oil-producing states in the United States.
  • The state is home to a number of different major oil and gas players, including BP, ConocoPhilips, Shell, and Valero Energy.
  • Houston is the state's largest city and a key center for oil and gas companies.
  • Austin, Dallas, San Antonio, and Midland are among the other major hubs for the industry.
  • A series of setbacks during the COVID-19 pandemic affected the industry, which is expected to go through some slowdown again before it recovers.

Oil and the Texas Economy

The oil boom has had the effect of lowering U.S. foreign imports of petroleum. A majority of the oil fields in Texas originate from two formations, the Eagle Ford Shale and the Permian Basin. Texas accounted for 40% of the oil produced in the U.S. during 2018, generating an average of 4.4 million barrels of oil per day (BPD).

As of October 2021, Eagle Ford produces over 782,000 BPD while the Permian Basin produces over 2.7 million barrels of oil per day. The use of hydraulic fracturing, which is commonly referred to as fracking, and horizontal drilling have infiltrated previously unreachable oil taps, supporting the surge in Texan oil production. 

Counties in the southeast and central Texas have benefited economically from the oil surge as employment rates, average incomes, and home sales soar in select cities, while areas with long histories of oil production and industry branch out further from recent production rates.

Many have gained from the new source of riches—the oil companies, the landowners who have leased their acreage to drillers in exchange for exorbitant monthly rents, and the local economies of cities that play host to the fracking.

The following are the Texan cities that have helped spur the highest oil production, driving production levels of oil in the U.S. higher than in Saudi Arabia.

About 43% of all crude oil production in the United States comes from Texas.

Houston

Houston is the state's largest city with a population of 2.3 million. This makes it the fourth most populated city in the country. Already home to the headquarters of several oil and gas companies, Houston is undergoing major developments in industrial gas complexes. Despite layoffs in the oil industry happening in Houston, the city is still the energy capital of the world. 

The major oil company employers in Houston’s Energy Corridor are BP, ConocoPhillips, and Shell. Houston is also home to the second-largest public company in Texas, Phillips 66, which brought in $111.5 billion in revenue for 2018. ConocoPhillips follows with $36 billion in revenue. The oilfield services giant Schlumberger Limited also operates out of Houston.

Austin

The oil boom has attracted 300 companies to Austin, including Jones Energy and Brigham Exploration, which employ residents in the fields of oil investment, surveying, drilling technology, and production. Aiding the oil drilling ventures is access to former graduates and the research facilities housed at The University of Texas at Austin. 

The petroleum and geosystems engineering department has provided an educational basis for companies to be further equipped with the latest technologies upon entering the field. As part of a fellowship program, oil company Statoil ASA worked with the university to begin a $5 million investment in the school's graduate students.

Dallas

Oil production helped move this city away from the cotton and rail industries. Oil tycoon and billionaire H.L. Hunt lived in Dallas and left a long legacy in the city. The headquarters for Energy Transfer LP is located in Dallas. This major oil energy company took in an estimated $54 billion in 2018 and 2019 but slumped to $38.9 billion in 2020. The HollyFrontier Corporation is also located in Dallas, with revenues of $17.4 billion in 2019, and only $11 billion in 2020.

San Antonio

As the second most-populated city in Texas and the seventh in the U.S., San Antonio is home to the South Texas Oilfield Expo and more than 80 gas and oil companies. This includes Valero Energy (VLO), which had revenues of $108 billion in 2019, but only $64.9 billion in 2020. One of the city's largest employers is an oil refinery, Ultramar Diamond Shamrock Corporation, which is owned by Valero.

Midland

Located in Midland County, Midland has a population of 146,038 and sits on the Permian Basin. The city's population and average salaries rose since gains were made from oil drilling. The new riches of Midland prompted population swells that were reportedly the highest in the country in 2018.

Midland’s school district was able to open new teaching positions, though some teachers left their jobs to pursue higher-paying opportunities in the oil fields—where even inexperienced workers have an opportunity to net over $70,000. Average wages increased throughout the city, including entry-level fast-food service workers.

Midland had one of the lowest rates of unemployment in the county at 2% as of 2019. Likewise, the cost of hotel stays has risen, along with the median household income, from $32,174 in 2000 to $128,766 in 2019. The city's sales tax revenue came in at over $55 million between 2019 and 2020, which was just under the all-time high of $57 million from the previous year. Major oil employers in the city of Midland include Patterson Drilling UTI, Key Energy Services, Halliburton Energy Services, ConocoPhillips, Propetro Services, and Chevron.

The Effects of the Pandemic

Studies show that the COVID-19 pandemic may be one of the United States' biggest challenges since World War II. The effects of the pandemic hit virtually every sector of the economy, so it should come as no surprise that Texas's oil industry suffered losses and setbacks during the global COVID-19 pandemic. For instance, revenue for some of the major companies in the state dropped as a result, such as Phillips66, which netted $64.13 billion by the end of 2020.

The University of Houston's Hobby School of Public Affairs conducted a number of surveys about how businesses have been affected by the virus. Findings for one of these surveys were released in partnership with the Texas Oil and Gas Association, a trade association that represents oil and gas companies based in the Lone Star State.

According to the survey, which was conducted in May 2020, respondents indicated that their companies responded to the drop in oil demand and prices by setting up cost-cutting measures. A hiring freeze was also implemented by 61% of respondents. Other measures included cuts in executive bonuses, reduction in overtime, temporary salary reductions, and furloughs.

Reports indicate that employment in the state's oil and gas industry dropped by 11% along with Texas' mining and logging sector. This equated to a loss of 67,900 jobs between May 2020 and May 2021. The Federal Reserve Bank of Dallas predicted that the state's economy, which showed signs of rebounding in late 2020, would slow down again in 2021, partly because of a weaker oil market. Experts, though, believe that will change, thanks to an increase in production in the Permian Basin.