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Texas Braces For A Drop In Production After Oil Prices Fall
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Texas Braces For A Drop In Production After Oil Prices Fall

Business

Texas Braces For A Drop In Production After Oil Prices Fall

Texas Braces For A Drop In Production After Oil Prices Fall
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Oil production has been booming in Texas, fueled by technological advances. But the fall in oil prices will slow things down. The coming year is likely to see a weeding out of the weakest producers.

DAVID GREENE, HOST:

And let's go now to a state, Texas, where nothing ever seems larger than expected. And yet, the recent oil boom there has been remarkable. In the last three years, oil production in Texas has doubled. If Texas was a country, it would be ranked as the world's sixth-leading producer. But since June, oil prices have dropped off a cliff. NPR's Wade Goodwyn looks at what that might mean for the Lone Star State.

WADE GOODWYN, BYLINE: Twenty years ago, driving through the east and west Texas oil fields was to witness the dinosaur bones of a once great industry. The old pump jacks were still there - rusted into rigor mortis.

(SOUNDBITE OF PUMPING)

GOODWYN: But it's been like one of those "Drama In Real Life" stories; the presumably dead man rises out of his casket and says, I feel great, and proceeds to run the New York City Marathon. The Texas oil industry has come back with a vengeance, and those horse-headed jacks are bobbing up and down once again.

PAT KIRBY: It's been lights out. I mean, it's been great.

GOODWYN: Pat Kirby is the owner and CEO of Kirby Oil Field Supply, which supplies equipment to both oil field producers and Texas refineries.

KIRBY: With the new technologies in drilling and extraction, there's tons of opportunity here in the U.S. in the oil gas fields.

GOODWYN: Fracking and horizontal drilling have made the old Texas oil fields new. Historically, oil producers drill through the shale to tap the giant reservoirs of oil trapped beneath it. They always knew there was oil in that shale, but it was more like a sponge than a pool, and they had no way to get it out. Now they can, and there are billions of barrels of recoverable oil in Texas shale deposits. But all this new oil combined with economic downturns in Europe and China has suddenly come home to roost.

KIRBY: I am surprised. I was surprised how quickly it's dropped.

GOODWYN: A pullback in production is inevitable. Kirby says his oil field supply business hasn't felt the pain yet, but he knows it's coming.

KIRBY: It's going to hit probably January, February. You know, there's opportunity still to make money. People won't make as much money as they had been.

GOODWYN: Experts in the Texas oil industry agree. There will be some contraction but not as large as you might think.

BRUCE BULLOCK: Four out of every 5 wells that are drilled are actually to keep production constant.

GOODWYN: Bruce Bullock is the director of the Maguire Energy Institute at SMU's Business School.

BULLOCK: That fifth well that would normally increase production probably won't be drilled next year.

GOODWYN: According to the federal government, Texas will have produced a staggering amount of oil in 2014, more than a billion barrels in a single year. Bullock says the economics of production change from field to field. Some of Texas's best fields can still make money at $40 a barrel, even less. For other fields, the current price has already fallen below its break-even point. But Bullock says there are other factors, which will continue to drive production next year.

BULLOCK: These leases that a lot of these companies have entered into require them to actually drill to hold those leases.

GOODWYN: That's to keep the major oil companies from buying leases they don't intend to use just to keep them out of the hands of competitors. Shale leases are like money in the bank, so producers do what's necessary to hold onto them, including drilling when price might dictate otherwise. The coming year is likely to see a weeding out that culls the weakest Texas producers. But for the rest, drilling and production is likely to continue at somewhere between 70 to 80 percent of the current rate, as they wait for the inevitable rise in oil prices. But nobody knows how long that wait is going to be. Wade Goodwyn, NPR News, Dallas.

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