Second Stage

Ten years ago, the price of a barrel of oil finally inched over the $30 mark, hitting its highest price since 1982, according to a Dec. 31, 2003, Reuters report.

A lot can happen in a decade.

At the end of August, the price of a barrel of WTI crude hovered around $107. From the days when majors left the Permian Basin and smaller companies shut their doors to the past few years when money, people, and businesses have poured into the dry, dusty West Texas and New Mexico plains, the industry has surged back and far surpassed where it used to be.

Longtime residents recall the late 1970s and early 1980s, when the price of oil bubbled higher and higher and Permian Basin towns thrived. Then the bust hit and everything dried up as businesses closed their doors and people left.

Area economic experts claim that scenario won’t be seen again. This time, the economic game stakes are based on a different set of circumstances. Yes, there are the same players with the oil and gas companies and service industries. But the rules are different. This time, technology and new methodology are expanding game play.

“The economy hasn’t slowed down any,” said Guy Andrews, economic development director with the Odessa Chamber of Commerce. “In fact, it may be speeding up a bit. It also will speed up more when the Cline Shale starts getting developed.”

Pam Welch, executive director of the Midland Development Corporation, sees no indication of a bust period coming. “I don’t think companies like EOG, Fasken, and Chevron would be investing here if they saw an economic bust coming,” she said, referring to those companies—and others—constructing new office buildings.

The Midland Chamber has taken the words “boom” and “bust” out of its vocabulary. Bobby Burns, the chamber’s president and CEO, said, “Today’s growth can be attributed to technology and actual production levels. As such, it is a sustainable trend—not a ‘boom.’ Clearly, the economy will level off at some stage, but Midland has faced adversity in the past. I believe it has made us smarter, stronger, and better prepared for any economic adjustments. ‘Boom’ doesn’t adequately describe our current environment and ‘bust’ isn’t a part of our future.”

“We’ve got to get rid of this boom-and-bust mentality,” agreed Andrews. Welch added that the chairman of the MDC “likes to refer to this situation as turning rapid progress into permanent growth.”

No one expects to see a sudden drop in the major source of the Permian Basin’s growth: oil and gas production. “We’ll see some downturn as adjustments are made,” Andrews said. “But nowhere are we going to fall off a cliff like before. That is just not going to happen. There are 146,428 oil wells in production in the Permian Basin. Even if they stopped drilling for oil, someone still has to maintain those wells.”

The Texas Railroad Commission reported the average Texas rig count as of August 16 was 837, representing about 49 percent of all active land rigs in the United States. “In the last 12 months, total Texas reported production was 583 million barrels of oil and 7.4 trillion cubic feet of natural gas.” The RRC noted that in July, the Midland district listed 471 permits to drill oil/gas holes. There were 1,090 oil completions and three gas completions.

Writer David Blackmon wrote in Forbes magazine that while Texas’ oil production has represented about 30 percent of the total U.S. output, the figures changed in May. “Texas accounted for 34.5 percent of total U.S. oil production, thanks to continued production growth in the Eagle Ford Shale and in several plays in the Permian Basin region of West Texas…. In April—the most recent month global data is available—Texas would have ranked 12^th among all nations, in this category, just head of Venezuela, and slightly behind Kuwait and Mexico.”

And speaking of size, the Eagle Ford and Bakken together would fit into the Permian Basin with room left over, noted Andrews. “We are still the largest oil field in the U.S.,” he said.

In the meantime, Permian Basin cities and towns are scrambling to catch up on infrastructure, housing, schools, utilities, and other services as people continue to pour into the area. West Texas and southeast New Mexico rank among the nation’s lowest in unemployment figures. Businesses see this area as a hot spot for sales, and more retail and food establishments are opening locations.

Odessa posted an unemployment rate of 4.2 percent in July compared with 4.5 percent one year ago. Building permits tallied 3,482, with a value of $263,205,669 for the year to date in July 2013 compared with 3,458 and a value of $218,658,939 in July 2012. The City of Odessa also posted increases in sales and use tax rebates with $3,744,678.23 for June 2013 as opposed to $3,557,335.98 a year ago. For the year to date, the figures are $26,497,604.10 compared with $23,768,081.71 in 2012, to post a 11.48 percent increase.

“We are on track to hit $400 million in building permits by the end of this year,” Andrews said, noting last year’s permits totaled $380 million.

Midland mirrored similar increases. The sales tax rebate for July 2013 reached $4,641,256 million compared with $4,270,317 a year ago, posting an 8.7 percent increase. It wasn’t the largest increase, though. March 2013 rebate totaled $4,552,715, a 16.19 percent hike over the 2012 tally of $3,893,236. In June this year, the hottest place in town was at the city permit office, which posted $152,366,071 in permits, a 424.2 percent increase over the previous June figure of $29,065,913. In fact, one week in June builders took out $100 million in permits. “It was a good week,” a city building official told the Midland Reporter-Telegram.

These “good times” are not restricted to Odessa and Midland. CNN Money Report listed Andrews in its top growing cities with a 4.6 percent growth in one year. Odessa and Midland were also on that list. Forbes magazine looked at the fastest growing small towns in America. On that list were: Pecos, No. 2, a 23.2 percent growth in population; Andrews, No. 9, posting a 12.5 percent increase; and Hobbs, N.M., No. 12, showing an 11.5 percent increase.

A decade ago, towns throughout the Basin had plenty of land for business development. Today, in this economic game that resembles Monopoly as people buy up land and housing, cities are finding themselves running out of land for expansion.

“We’re running out of land for business development,” Andrews said bluntly. “If a business comes in looking for five acres or more, it’s hard for us to find it. When we run out of tracts in our business park, we’ll be out. And Larry Lee (Leeco) only has 60 acres left out of his 700.”

Hanging in the air is a 520-acre tract that Navasota Energy has optioned for a solar farm. Andrews said that option is good only through December and if the company decides not to pursue its plans, the land then would be available to other businesses.

Each month, Andrews sends out a list of businesses planning to move to Odessa or have opened their doors. In recent months that list includes: Chipotle Mexican Grill, Panda Express, Iron Horse Ranch (Halliburton adding 30 new units to its workforce camp), Courtyard by Marriott, Homewood Suites, Ryerson Steel (new warehouse and office), Graybar Electric (new distribution warehouse), Faudree Ranch Apartments, East Town Plaza, The Shops of Mission, Industrial Transmission, and Wildcat Oil Tools, along with construction at Odessa College, University of Texas of the Permian Basin, and the Ector County Independent Schools.

Recently added to the list is Halliburton, which opened its new administrative building on 50 acres of land in west Odessa. The company has purchased an adjacent 10 acres for future expansion. Jim Brown, president of Halliburton’s western hemisphere, told the crowd at the opening event, “the Permian Basin plays a critical role in the development of energy in our nation, and the Permian Basin continues to reinvent itself. It’s a brilliant example of the innovativeness and resiliency and just invention that’s been brought forward in the oil and gas communities.”

In March, the U.S. Census Bureau announced that Midland was the fastest growing metropolitan area, with 4.6 percent growth between July 2011 and July 2012. Odessa came in at fifth.

Corporate headquarters account for a large part of the announcements in Midland. The list includes:

• Chevron, two four-story buildings on a 25-acre campus, $100 million project;

• Concho, renovation of a downtown office building;

• EOG Resources, one of Fortune 500’s “100 Best Companies to Work For,” with a new 86,000 square foot office building and parking garage;

• Fasken Oil and Ranch, with construction of its new corporate headquarters in far northwest Midland with plans for more offices, apartments and housing in the development;

• Pioneer Natural Resources, with its construction on a $50 million office building for 300 to 400 employees.

• Schlumberger, putting up a new 80,000 square foot building to be completed in 2014.

Infrastructure and lack of housing have heretofore held the reins on growth, pulling it back to a slower pace.

Burns with the Midland Chamber said the city and county are catching up on infrastructure. “The Midland Chamber works with both entities to advocate on behalf of our business community for transportation funding and protection of our water rights. We also work with our local schools, recognizing the role our educational system plays in a healthy business climate.”

One city to the north of Midland-Odessa decided not to wait on Texas Department of Transportation for a new road. Andrews is opening a 13-mile reliever route around the city in October, according to Wesley Burnet, MPA, CEcD, director of the Andrews Economic Development. This route will divert truck traffic around the city along U.S. 385.

“The city started about 2 ½ years ago on this project,” Burnett explained. “City officials acquired the land, levied a sales tax, and issued some bonds. The route will open in October. If we had waited for TxDOT, they would still be working on acquiring the land.”

Like Midland and Odessa, Andrews finds itself running out of land. “There are no empty buildings,” Burnett said. The economic development department purchased 200 acres on the west side of Andrews and on the north side of the Eunice Highway. The reliever route cuts through the middle of this business park.

Realizing that most companies want to locate in the larger cities, Andrews is offering an incentive to build in the new business park. “We are giving them the land if they make a commitment to constructing a building,” Burnett said. “Land is at a premium and we’re trying to provide land at a cost that is conducive to expansion here.”

The plan is working. Burnett said his office is fielding numerous calls from companies looking to locate an office in West Texas. Recent additions to Andrews’ business rolls include Mustang Well Service, K-V Power, JGL Solutions, Black Hawk Energy Services, Dufrane Nuclear Shielding, and K and Company Electric.

If a slowdown rolls onto the economic game board, Andrews has a couple of cards up its sleeve to alleviate the impact. The city is involved with the uranium enrichment company located just across the state line in New Mexico. And Kirby Vacuum Cleaners operates a manufacturing facility in Andrews. “They have about 200 jobs and 1,000 vacuums a day are shipped out,” Burnett added.

Across the state line, Hobbs, N.M. is experiencing the same growing pains as West Texas, much of it due to the petroleum industry. Lisa Hardison, president and CEO of the Economic Development Corporation of Lea County, said U.S. Census data showed Hobbs grew 19 percent from 2000 with 28,657 people to 34,122 in 2010. During that same period, Lea County added 16 percent to its population.

Like other communities, Hobbs tried to diversify during the slow years. But it continued to focus on energy, and the development corporation has capitalized on that, branding the area The EnergyPlex.  “We have oil and gas, plus nuclear, wind, solar, and biofuels. If there is any way power can be generated, you can find it in Lea County,” Hardison said.

Hobbs Mayor Sam Cobb pointed to the $3 billion uranium enrichment plant near Eunice that is padding the economy. With 1,000 employees expected during the construction phase, it amounts to “a substantial economic impact.”

Joule Unlimited Technologies opened a plant near Hobbs to perfect its biofuel process in which sunlight, CO₂ and brackish water comprise the basic ingredients for a fuel similar to ethanol. The company has been selected a 2013 Bloomberg New Energy Pioneer.

“We knew they were looking around and we saw an opportunity,” Hardison said. “We had several assets that we knew were a fit: several acres of flat land, multiple sources of CO₂, and brackish water availability in deep wells.” And lots of sunlight.

“It’s important for us to continue down a path of being an important player in the energy industry,” she said.

Meanwhile, Lea County is seeing the return of Shell and Chevron, Cobb noted. Agreeing with Burns in Midland and Odessa’s Andrews, Cobb doesn’t expect a downturn soon. “It appears our country has the political will to get the bulk of our energy needs from the North American continent.”

Like other cities in West Texas, Hobbs is experiencing low unemployment. According to Hardison’s office, employment in Lea County increased by 5.4 percent for the first quarter of 2013. The unemployment rate for that period was 4.1 percent, which was the lowest first quarter unemployment rate since 2008.

Every community in the Permian Basin is facing housing shortages and spokesmen agreed their cities weren’t ready for the sudden and continued influx of people. Like the game of Monopoly, people who arrived first and found housing seem to be the game winners while newcomers are relegated to over-priced houses and apartments. They also are seeking temporary housing by renting residents’ guest  houses or extra bedrooms.

“We’re trying to get some apartments built,” Burnett said of Andrews’ situation, “but we’re way behind the curve. Andrews hired 50 new teachers and we’re trying to work with the school district and put out feelers for rental property. This is a longterm issue—we can’t build houses fast enough.”

Cobb and the city of Hobbs are working on housing incentives. To get everyone into housing quicker, the city is focusing on multi-family units. “I would like everyone to have a home mortgage,” Cobb said. “But we are trying to get people into multi-family housing where they can get some permanence and then move into single family homes.”

Homes in Midland and Odessa don’t stay on the market long. Housing developments and apartment complexes are springing up all over the cities. Burns said the Midland Chamber of Commerce, working with the city and county governments and local homebuilder’s association, produced a Housing Developer’s Guide to attract new developers and make the process from concept to start of construction easy to navigate.

“While housing is still lagging behind our current needs, we have seen dramatic improvement and expect stabilization very soon even though our growth indications are still strong,” Burns said.

Welch with the Midland Development Corporation noted that four complexes are in the final stages.

Projects include 398 lots for homebuilder D.R. Horton, 150 apartments in Wall Street Lofts, 290 apartments at a Weidner development, 62 homes in  Legends Park, and 210 units in Midway Apartments.

In Odessa, Andrews’ office listed Faudree Ranch Apartments, Sedona Ranch, and Brownstone Road Apartments. He noted that four complexes are going in along Faudree Road. D.R. Horton also is building 30 to 40 homes while Betenbough is developing 265 acres for housing.

Hotel rooms also are being added each month, thus easing the room shortage in the Basin. Welch said hotel managers are saying their facilities are no longer booked solid and are able to accommodate more travelers and business people. “We had some people in recently and they were able to get reservations on short notice,” she said.

Odessa’s economic development department recently sold land for a new Hilton Hotel in the business park, according to Andrews. There will be six hotels in a row and 12 more are in the planning stages, he said.

Meanwhile, oil and gas companies continue plans for drilling and expanding operations. Andrews recalled his conversation with Halliburton’s Jim Brown, who said if his company drilled 450 wells a month, they still have 70 to 100 years of drilling ahead of them.

“We’ll see some downturn as adjustments are made over the years,” Andrews predicted. “It will be more like a rolling hill” instead of the jagged ups and downs. “It won’t be where we fall off a cliff. That is not going to happen.”

Out here in the Permian Basin, a lot can happen in a year.