When it comes to oil production, no other state is in the same ballpark as Texas. The state produced more than 3 million barrels a day in September, nearly three times as much as North Dakota, the second-highest producing state. And that total does not count offshore production in the Gulf of Mexico, which totaled more than 1.4 million barrels a day in September and is attributed by the U.S. Energy Information Administration as a single number although production is spread among the states of Texas, Louisiana, Mississippi and Alabama.

But for all its oil, the state of Texas relies less on oil than either North Dakota or Oklahoma. The 2013 gross domestic product (GDP) for the state totaled $138.76 billion, and of that total $16.19 billion (11.7%) comes from the natural resources and mining sector that includes oil and gas production. In North Dakota, more than 21% of the state’s GDP comes from the same sector and more than 7% of the state’s jobs are related to resource extraction, compared with less than 3% of employment in Texas. In the United States as a whole, the natural resources and mining sector accounted for about 3.3% of 2013 GDP of $15.53 trillion.

As of October, there were a total of 471,700 workers in North Dakota, compared with 11.7 million in Texas. Each employee in North Dakota generated about $105,500 in GDP, while each employee in Texas generated about $12,000.

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Each Texas worker in mining and logging generates about $49,500 in GDP. In North Dakota each of the 34,000 workers in the same sector generates about $312,000 in the state’s GDP.

Even though Texas produces so much oil, the industry’s impact on state GDP and revenue is much more heavily felt in North Dakota than it is in the Lone Star state. In the state’s biennial revenue estimate made in January 2013 and covering the two-year 2014 to 2015 budget biennium, the Texas Comptroller of Public Accounts noted:

Although the impact of the oil and natural gas industry on Texas’ economy has moderated, its current 17 percent share of Texas [gross state product] remains four to five times greater than the share of oil and natural gas in the nation’s economic mix. As such, oil and natural gas sectors have helped Texas outperform the national economy during fiscal 2012.

The state taxes oil companies in two ways: first, a franchise tax that is applied to all businesses in the state, and second, oil production and regulation taxes. The franchise tax, often called a margin tax in Texas, was adopted in 2006 in an effort to provide property tax relief to homeowners. That hasn’t worked out, and voters in the state’s primary elections last spring overwhelmingly supported abolishing the tax.

The state’s receipts from the franchise tax have risen from around $7.8 billion in 2010-2011 to an expected $9.5 billion in the current two-year period of 2014-2015. The amount headed for property tax relief is estimated at $3.96 billion, and the remainder is dumped into the general fund.

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Several oil and gas taxes are levied by the state of Texas. The state enforces a 4.6% oil production tax, a 7.5% natural gas tax and an oil regulation tax of 3/16 of a penny per barrel of oil produced. That last one doesn’t sound like much, but on 3 million barrels a day of production that is more than $2 million a year.

Texas also budgets very conservatively when it comes to oil revenues. Perhaps that is due to the memory of the big drop in prices that hit the oil business in 1981. Whatever the reason, in 2013 the state drew up its budget based on a crude oil price of $85 a barrel, and the 2014 budget was created on the basis of an average crude price of $82.18 and the 2015 price has been slugged in at $80.33.

The price collapse of the 1980s also resulted in the creation of a rainy day fund that would help mitigate the impact of another crash in the price of oil. Under the law until the election this past November, every fiscal year 75% of the amount by which the prior year oil production tax collections and natural gas production tax collections exceeded their respective fiscal year 1987 collection levels ($531.9 million for oil and $599.8 million for gas) is transferred from the general fund to the rainy day fund. A referendum passed in the recent election amended the state’s constitution to divert half the annual contribution now made to the fund to pay for highway improvements.

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The budgeted per barrel price may still be too high however. Although the issue in Texas is not as acute as it is in North Dakota, the main production areas in the state — the Permian Basin and the Eagle Ford shale play — are both underserved by pipeline transportation. That means that buyers do not pay the full West Texas Intermediate (WTI) price, but rather a discount to include the cost of getting the crude to either the pricing point at Cushing, Okla., or a refinery in Texas or Louisiana. The discount has fallen to right around $1 a barrel in the Permian Basin recently as new pipeline capacity has become available. From the Eagle Ford, the discount is “a few dollars” according to a report from Bloomberg News, which pushes the current price down to around $61 to $62 a barrel at the wellhead.

In the 2014-2015 biennium, oil production and regulation taxes are expected to contribute $4.6 billion to the state’s coffers and natural gas production tax to contribute another $2.5 billion. Another $3.62 billion in oil and gas production taxes are expected to be reserved in the state’s economic stabilization (rainy day) fund and to pay for highway work. Total state revenue for the two-year period is $96.22 billion, and receipts from oil and gas taxes amounted to about 11.1% of the Texas state budget.

One other potential impact on the state could come from changes to the state’s bond ratings. Moody’s and S&P recently carried ratings on Texas’s general obligation bonds of Aaa and AAA, respectively. The ratings may change, of course, once the agencies have more time to model possible effects from the drop in crude prices.

The wellhead price of oil is already below the state’s budgeted average of $82 a barrel for 2014 and $80 a barrel for next year. If crude were to average $60 a barrel next year, straight-line math indicates that Texas’s receipts could fall by a quarter if production does not change. The state’s budget would have to make up a shortfall of about $2.7 billion, not impossible for a state as large and diverse as Texas, but not painless either.

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