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This is what it looks like when an oil boom in Texas bursts

a sunset over a city

© Cengiz Yar for the Wall Street Journal

When an oil spill arrives in West Texas, no one is spared: oil rigs collect dust, barber chairs sit empty, students drop out of school and the queues at the food bank swell.

The breakdown after the new corona virus was historically brutal. Within a few weeks, global demand for oil shrank by more than 20% this spring as people squatted indoors and stopped flying and driving. Oil prices plummeted. A fracking industry that had brought American production to 1

3 million barrels a day worldwide withdrew completely. And the nation’s hottest oil field, the Permian Basin, was closed almost overnight.

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Last year, the Wall Street Journal recorded the boom in the Perm region, then one of the hottest job markets in the country. At the time construction was booming, hotels were charging fees that rivaled New York City, hairdressers were earning up to $ 180,000 a year, and schools were trying to cope with the rising cost of housing from oil production.

This intoxication slowed late last year as investors pulled out of the oil field after years of disappointing returns.

Now everyone, from the restaurant owner to the rancher, is struggling to survive, as the oil companies are drilling new wells and shutting down existing ones that are uneconomical at current prices. In early July, only 125 oil rigs were drilled in the Permian, about a third of the number at the end of last year, according to Baker Hughes Co.

This is what it looks like when an oil boom bursts.

Abe Guerrero has picked up groceries from the West Texas Food Bank since he was fired from his job two months ago as a security manager for an oilfield carrier.

The company fired all but 20 of its approximately 200 drivers. Overall, unemployment in the Permian basin rose to 13.4% in May from 2.1% in the previous year, according to the Texas Workforce Commission.

The RV park where Mr. Guerrero lives with a friend cut the rent from $ 580 a month to $ 480 after losing 80% of his residents, but he says he still counts on the grocery bank.

“It’s a different way of life these days,” says Guerrero, 57, who recently waited in line to get food in Odessa. “It’s like a third world country.”

The West Texas Food Bank has distributed nearly £ 900,000 of food a month since March, up from around £ 550,000 the previous year, according to Executive Director Libby Campbell. She says 74% of households who collected food in April had never been to the food bank before.

“We know how to deal with hurricanes, fires and floods,” said Ms. Campbell. “There is no manual with that. It will be a long way and we are far from finished. “

Pody’s BBQ, a pecos restaurant that was an important pillar of piracy in booming oil, lost 30% of its sales. It started losing customers long before the bust, says owner Israel Campos. Drilling activity slowed last year when an oversupply of crude oil began to form.

“You could see it coming,” says Mr. Campos. “Then the pandemic hit and that was worse.”

According to Campos, many of his customers can no longer afford more expensive offers such as chest pieces. Pody’s has switched its menu to Mexican cuisine and burgers, cheaper dishes.

Matt Elliott realized that US oil production would decrease earlier this year when he started to see oil rigs idling around Pecos. Then Saudi Arabia and Russia started a price war for market share in March, which aggravated the crash of coronavirus oil.

“Within a few weeks, it was a whole new industry,” said Elliott, 32, general manager of White Shark Energy LLC, a service and equipment rental company.

The work in the oil field was practically dry, and he and his staff were busy maintaining the equipment. He expects his company’s sales to be 50% to 70% below the previous year.

If there is a silver lining, the crash could give cities like Pecos time to build the infrastructure needed to support the influx of new residents and temporary workers that the oil boom has attracted, says Elliott, a Pecos native.

According to the US Census Bureau, the population of Pecos has increased nearly 20% to about 10,000 since 2010, and a new $ 115 million hospital and recreation center worth $ 17 million are currently under construction.

“It gives our community time to get back on its feet and make the necessary changes,” he says.

Last year, hairdressers who worked for Pete McGarity earned $ 180,000 a year to cut hair near oil wells throughout Perm. Now Mr. McGarity is working the oil field alone and sees a fraction of the customers.

“It’s definitely a panic, man, a lot of people live on oil here,” he says.

Mr. McGarity and a team of three or four hairdressers worked around the clock in his bespoke, mobile barber shop during the oil boom. Now the roughnecks that would line up in front of his caravan are almost gone, he says.

These days, Mr. McGarity is driving the store alone to forgotten cities in the Chihuahuan desert that lack hairdressers to make up for lost oil customers. Where his team once cut up to a hundred heads a day, Mr. McGarity could now see 20 customers.

The closure of Headlines, his stationary barber shop in Odessa, made the pain worse. Originally closed due to quarantine measures, it could only be reopened in June after a car crashed in front of the store.

Mr. McGarity has not yet had to lay off employees, but says that he can only use half of his barber chairs to maintain social distance and fears that customers may stay away.

Still, he believes his business will survive after going through several oil busts since opening his Odessa store in 1998.

“If you look at the story, the oil will be high again,” he says. “As far as I’m concerned, how long it will take.”

At Fort Stockton, less than two hours southwest of Midland, the local school district had to build maisonettes for teachers to make the remote area more affordable for those who don’t work in the oil field.

Now, since the spring break, when the Lone Star State stopped taking private lessons because of the corona virus threat, it has lost contact with about 10% of its student body. Typically, this number is less than 1% in the district.

Fort Stockton administrators believe that some of these students have moved away permanently, in some cases because their parents have lost oil field jobs.

“Whatever our school year next year looks like, it will be a catch-up process,” said Robyn Derington, who was the curriculum director at Fort Stockton until recently.

In the meantime, the school district still hopes that the rental housing it builds for teachers will help lure potential employees to the distant city. Homes in West Texas can be difficult to pay for when a teacher’s salary and rents are tight.

Despite the bankruptcy, property prices have not yet dropped significantly. The typical midland real estate price in May was $ 265,000, according to Zillow Group Inc.

“People are asking about it, so I think it’s a good thing,” said Fort Stockton headmaster Ralph Traynham, adding that he expects the first units to be available this summer.

The boom triggered an explosion of makeshift apartments for oil field workers, many of whom do not live on site. Over a dozen new hotels have opened in Pecos in the past decade, says Kurt Schlunegger, whose family owns two nearby hotels.

This surge in construction made the oil crash all the more painful this spring. According to the hotel data tracker STR, hotel occupancy in the entire Permian fell to 32% in April, less than half the previous year’s level and the lowest measured rate.

“People built and opened up to this Covid thing,” says Schlunegger, who saw occupancy of his properties below 20% on Memorial Day weekend.

He is optimistic that he can recover, also because none of his hotels are mortgaged. But some competitors have already closed, he says.

About half an hour east, in the Monahans area, the homes, caravans, and RV parks that Henry Cutbirth and his brother owned were still about 60% full at the end of June. However, the 68-year-old Cutbirth fears that demand for the end of federal aid programs such as the paycheck protection program may decrease and possibly lead to additional job losses.

“When this subsidy ends, it will probably look like nothing in ’86. It will be a disaster, ”says Cutbirth, referring to the last major oil spill in Texas.

Steve Warren, a 47-year-old electrician who maintains oil rigs, lives two weeks a month in one of Mr. Cutbirth’s RV parks.

“You come in and there really is hardly anyone you can talk to,” he says. “Almost like a ghost town, pretty close.”

Paul Weatherby’s family has been collecting royalties from oil exploration at their Fort Stockton ranch for nearly a century.

These controls have shrunk as large producers, including Exxon Mobil Corp. and Diamondback Energy Inc., who pulled oil rigs from Mr. Weatherby’s Ranch. The 1,760 hectare ranch has 11 producing wells. Exxon and Diamondback had planned to drill at least six additional holes between them, Weatherby says, but have stopped these plans for the time being.

“We love getting the money for the mailbox,” says Weatherby. “The license fees for everyone had been minimal or no longer available for a month or two. That’s just the way it is.”

But the Weatherby family, collectively based on royalties, has a new source of income: solar energy. In 2018, Mr. Weatherby signed a 30-year lease for 600 hectares of the ranch with 7X Energy, which is building the largest solar field in Texas, a 602 megawatt project on 2,000 hectares. Around 300 workers come to the ranch every day to set up the project.

Mr. Weatherby, a retired rancher and sheriff, says his family’s long-term bet is on solar. While the initial returns aren’t as lucrative as an oil well, a 30-year solar lease is more reliable than what it sees as the oversaturated oil industry.

“We’re not engineers, but from a redneck point of view, they seem to have too much competition,” Weatherby says of oil companies. “Whenever one rig sits there and drills well after another and Tom, Dick and Harry do the same, you get nervous.”

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