Oil and Natural Gas Might Pay for Your Child's Education


Photo credit: Anadarko Petroleum

It's no secret that oil and gas production has been surging in Texas. Companies such as EOG Resources , Anadarko Petroleum and Apache have been leading the charge. Thanks to the success of these companies, the Lone Star State's rainy day fund has never been richer.

In fact, the pot that is more formally known as the Economic Stabilization Fund now holds more than $14 billion. It is only expected to grow bigger in the future thanks to taxes from increased production. This past year the state collected a record $4.3 billion in severance taxes from oil and gas development, of which $2.5 billion will be deposited in the bailout fund per state law.

If predictions from state Railroad Commission Chairman Barry Smitherman prove true, annual deposits to the fund could eventually surpass $6 billion per year. That's because he sees oil and gas production in the state tripling as drilling permit applications rise to levels not seen in nearly 30 years.

Production gusher
One of the companies fueling the recent rise in Texas' oil production is EOG Resources, which is the largest producer in the Eagle Ford shale. It doesn't see oil production slowing down either. Instead, EOG anticipates best-in-class oil production growth through 2017 as it continues to develop the Eagle Ford, as well as its emerging opportunities in the Delaware Basin. At its current rate, EOG Resources has more than a dozen years' worth of drilling inventory in the Eagle Ford and decades more in the Delaware Basin.

Apache tells a similar story of future production growth. It's currently the No. 1 driller in the Permian Basin, but it sees an even more impressive future out of that play. One of the reasons for this is its vast reserve potential. Apache has proven reserves of 812 million barrels of oil equivalent. However, it estimates additional unproven resources upward of 4.1 billion barrels of oil equivalent. This has led Apache to increase its investment in the play, up sixfold since 2010 alone. As Apache continues to grow production some of that cash flow will to spill into Texas' rainy day fund.

Anadarko Petroleum also has made a big impact on Texas' oil and gas production, as well as its stabilization fund. This year alone the company will drill more than 500 wells in the state, in locations including the Eagle Ford, Permian Basin, and East Texas. In the Eagle Ford alone Anadarko has grown sales by a 100% compound annual rate since 2009. While its rate is likely to slow over time, that's only due to the law of large numbers as Anadarko still has more than 2,500 identified future drilling sites in that single play. Bottom line, Anadarko Petroleum will continue to fill Texas' coffers for years to come.

More states swimming in oil and natural gas cash
Texas isn't the only state swimming in cash thanks to oil and gas production. North Dakota's economy has been riding the incredible coattails of the Bakken shale. In that state, the average well from a producer like EOG Resources will pay $4.3 million in taxes over its lifetime. That's flooding the state's newly created North Dakota Legacy Trust Fund with in excess of $1.3 billion in cash -- more than double the fund's original target for this point in its life. North Dakota's plan is to let its cash build up until June 2017, when lawmakers are allowed to begin making withdraws for areas such as education.

A number of other states have set up funds with excess oil and gas taxes. New Mexico, for example, has an $11 billion Severance Tax Permanent Fund that it uses to pay down the interest and the principle on the bonds that it issues. Wyoming has a $6 billion fund that it uses primarily for scholarships. Finally, Alaska uses its massive $45 billion Permanent Fund to give residents a cash dividend each year. Last year, that amounted to $878 per person. With so many other states swimming in debt, oil and gas really has set these states up for success.

Final thoughts
America's energy boom has the potential to fuel the budgets of a number of states for the foreseeable future. Texas is in an especially solid position as it has both the Eagle Ford shale and the Permian Basin, which show no signs of turning off the spigot to its rainy day fund. It's a luxury few other states currently enjoy.

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The article Oil and Natural Gas Might Pay for Your Child's Education originally appeared on Fool.com.

Fool contributor Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of EOG Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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