Karnes County finds oil money brings promise, problems

After more than three decades of running City Pharmacy on slowly decaying Main Street, Paul Bordovsky retired in 1995 to raise his Charolais cattle on 640 acres of rolling grassland a few miles east of town.

After hauling a couple of young bulls to a sale in Cuero one day in early 2008, he called his wife, Emily.

“I said, 'I've got some real good news. I got $3,000 or $4,000 for those bulls,'” he recalled.

“And she said, 'I've got better news for you. Conoco has called twice already. They're coming out here to stake a well.'”

Little could the Bordovskys or anyone else in Karnes County have grasped the implications of Conoco-Phillips' secretive decision to drill a deep, expensive well into the mysterious formation known as the Eagle Ford Shale. Over the decades, other energy leases on their land on FM 81 came up dry. The thought of someone tapping a mother lode under that unspoiled pasture was exciting, even if expectations were low.

“I had no reason to think this would be any different. I'm not that big a dreamer,” Paul said.

But this was very different. The boom that followed Conoco-Phillips' strike upended sleepy Karnes County. Thousands of workers have poured in, an untold number of ranchers became multimillionaires, main streets boast new businesses and hard work routinely begets six-figure salaries.

The boom also has brought dangerous roads, economic inequity, social disruption and overtaxed infrastructure in a once poor region.

All of this was unimaginable in 2008, when Karnes County was a very marginal energy player, producing about 20,000 barrels of crude a month. Few here even had heard of the Eagle Ford Shale, a formation that always had clung tightly to its treasures.

As they had for decades, most people in Karnes County still were scraping by on ranching, prison jobs or dry-land farming of corn and grain sorghum. The fortunate had steady jobs with the county or school districts.

And like a banker or doctor, a small-town druggist comes to know his people well.

“For a long time, we saw everyone in town twice a day. We had a busy fountain. Lots of coffee drinking,” Bordovsky of the early years. “Back then, there was lots of welfare. Lots of Medicaid. I saw it at the store. And we had lots of tuberculosis and stomach worms because of the poverty.”

Keeping even the landowners in the dark, Conoco-Phillips took about a year and a half to drill and frack the first deep horizontal well in Karnes County.

“They told us it would be a very tight hole. Don't ask any questions,” Bordovsky recalled.

But the so-called discovery well for the Eagle Ford Shale in Karnes County proved to be a good producer, generating both gas and more than 130,000 barrels of condensate, with the Bordovskys soon cashing big checks.

It also brought rapid change to the rural landscape, as Bordovsky's roadside pasture on FM 81 is now jammed with construction workers, heavy equipment, huge storage tanks and complex piping.

A constant stream of tank trucks now delivers freshly pumped crude to new transfer stations operated here by Koch Pipeline and Conoco-Phillips on land bought from Bordovsky.

New pipelines cross his ranch, leaving lanes of bright green grass. Two more wells soon will be drilled on the backside, near the creek, and Bordovsky also is selling more roadside acreage to energy companies.

“It's been good to me. I miss that pasture, but I could have ranched here for 300 years and not have the income we do now. Anyone who owns property should be benefiting,” he said.

Talk to any mover and shaker in Karnes County, and two assertions likely will be heard. The first: Karnes long was the poorest nonborder county in Texas. The second, often delivered with pride, is that it's now ground-zero for the shale play that is rapidly transforming much of South Texas.

While proof of the first is elusive, there is little argument with the second claim.

In the past four years, more than 1,200 drilling permits have been approved for Karnes County and about 2,000 miles of new pipeline have been laid. Karnes now is one of the top crude producers in Texas. In November, it was first again, with almost 3 million barrels pumped. Simple math shows the staggering wealth pouring into the county.

With oil in November bringing about $97 a barrel and with typical royalties of 25 percent, roughly $70 million was paid to landowners for just that month's production, not to mention the many millions more spent here monthly by energy companies and their employees.

The boom has increased the county's population by about 70 percent as man camps and RV parks are popping up in every nook and cranny.

Traffic counts on some highways have increased by 300 percent with predictable, tragic results. In the past two years, at least 18 people died in wrecks in the county. In the three years prior, only five died.

Deposits at the Karnes County National bank have doubled in three years. The county's tax base has increased from $562 million to $3.1 billion in two years. The value of some prime commercial real estate has jumped ten-fold. “This is the sixth oil boom I've seen, and this one is gigantic compared to any of the others. It will end, but not like the others. With all this pipeline infrastructure they're putting in, we know it's here for a long time,” said County Commissioner Peter Jauer, 72, a Karnes County native.

“But it's changed the county. It's not the simple country atmosphere it was.”

County Judge Barbara Shaw said the boom has bailed the county out of its chronic financial woes but also brought two huge headaches: The ongoing destruction of roads by heavy equipment and dangerous highways.

“My problem is I have $18 million sitting in the bank, but I have at least $100 million in road damage,” Shaw said.

Karnes has joined forces with other Eagle Ford counties and hired an Austin lobbyist to press for legislation that would provide financial relief. Presently, the state keeps the tens of millions collected from energy companies in oil and gas taxes.

“It's just going to get better and better. In five years, Karnes County will be extremely prosperous,” she said. For Trip Ruckman, 68, president of the Karnes County National Bank, the economic tsunami has brought heavy loads of both toil and new deposits, not to mention outside attention.

“It's probably been the hardest year I've ever had, just handling everything, both at the bank and on the personal side,” said Ruckman, a descendent of one of the original 19th-century settlers.

Piled high on a shelf behind his desk are colorful brochures and pamphlets brought in by longtime customers who struck Eagle Ford gold.

“All these are from people who want to be my best friend. Stockbrokers and wealth management people,” the banker remarked with mild sarcasm. “You've got all this money and surely these country bumpkins don't know what to do with it.”

What is important about the boom in Karnes County, long a community of small farms, Ruckman said, is that because the land is held by many people, the new wealth is widely distributed.

“I don't really know, but there may be 100 here now, where five years ago there might have been 10,” he said.

Settled by successive waves of Poles, Germans, Czechs, Mexicans and Bohemians in the late 1800s, Karnes County then had a reputation as a lawless outpost. Among the gunslingers and rustlers who passed through was John Wesley Hardin, who had kin in nearby Gonzales, and often was on the lam for killing about two dozen men.

Before agriculture took root a little over a century ago, it was open range cattle country. The longhorns driven north over the famed Chisholm Trail to Kansas brought the first big surge of wealth.

After the railroads came through in the 1880s, commerce shifted to farming, and settlers began pouring in. In the first part of the 20th century, when cotton was king, Karnes County enjoyed several decades of prosperity.

“My grandfather said his cotton in 1900 made a bale an acre, which is remarkable. He said cotton will make you more money than any crop that comes out of the ground,” said Justin Hunt, 93, a local author.

The still elegant Main Street buildings in the two towns of Kenedy and Karnes City, with their dated wall inscriptions, bear testimony to that golden era. The most elegant, with granite columns and an arched stone entrance, was built in 1903 for the First National Bank in Kenedy.

But soil depletion, drier conditions and the boll weevil eventually felled King Cotton.

After the Great Depression, Karnes County entered a long-term economic decline, broken only by occasional oil booms and several decades of uranium mining near Falls City.

The county reached its peak population of 23,316 people in 1930. In the 2010 census, Karnes County had 14,824 residents, but that included 3,195 inmates at two correctional facilities.

Historian Robert Thonoff, 83, who came to the area in 1953 to teach school, was recently forced to move away after his daughter Margaret and two others died in an accident involving an 18-wheeler.

“We were very happy living in Karnes City. We had a nice home and a nice community. Our daughter was our caretaker. When she was killed, everything changed for us,” he said.

“This is just the latest one to hit Karnes County, going back to prehistoric times. There have been a half-dozen or so, cattle, cotton, oil and uranium. And after every boom, there is a bust. When the drilling stops the population will decline,” he said.

“Life has changed dramatically for everyone and it's been a mixed blessing,” he added.

So far, the old money in Karnes City has been slow to embrace new development and the town still wears a listless, beaten-down look. Six miles away in Kenedy, a rival in everything from high school sports to commerce, things are hopping.

Five new motels already have been built on U.S. 181, two 100-acre mixed-use development projects are coming, as is a large new H-E-B.

Unfamiliar new commerce also has come to town, including a Merrill Lynch office, a pawn shop, personal injury lawyers from San Antonio, 24-hour drug testing outfits and a check-cashing van that appears periodically beside U.S. 181.

Even the long-dead Rialto Theater, which opened on Main Street in 1935, is being reclaimed from the pigeons and the rot.

“A local lady told me the last movie that played there was the second Star Wars film, which was around 1980,” said Houston developer Walter Chance, who is gutting it for offices and apartments.

Chance already has turned an adjacent long-vacant furniture store into a well-appointed office complex with upstairs lofts.

“I'll be here until I retire,” said Chance, 54, who also is developing a retail site on U.S. 181. “This is going to go on for decades. It's time for people to realize this is not a flash in the pan.”

Just down the block is proof that even entrepreneurs light on capital are cashing in.

“I follow the money. I started coming down in May,” said Martín Herrera, 45, who brings tacos down from San Antonio five mornings a week for sale outside a welding supply shop.

The menu includes rajas, chicharrones, barbacoa and molleja tacos, and at 5 a.m., the line of hungry oil field workers stretches across the parking lot.

“On a good Friday, I sell up to 500 tacos,” Herrera said. Back in 2009, Steve Dziuk, 46, who once played sports for the Battling Beavers in nearby Falls City, bought a building on Main Street. He later opened a branch of his Ameriprise Financial Services office here.

Dziuk, a financial planner, now advises clients who suddenly have more money than they know what to do with. Folks around here poke fun at the older ranchers, who, when the big oil checks start rolling in, predictably buy a new pickup, a new tractor and then fix up their fences. But after that, many are clueless.

“I have a client who was literally living on $1,200 a month in Social Security who is now getting $300,000 a month in royalties,” Dziuk said. “They are overwhelmed. It's a blessing and a curse. They feel they have all these problems now that they didn't have before. We do a lot of hand-holding.”

Suddenly wealthy families now must grapple with investments, quarterly tax payments, estate planning and family trusts.

Dziuk encourages decisions that maintain family harmony. Ongoing litigation at the courthouse among local clans fighting over royalties shows how things can go wrong. “There are quite a few messy situations in the county. That's why you have so many San Antonio lawyers setting up shop down here,” he said.

“People were just scraping by, coming out of the recession. Our business was tough. It was the worst recession we'd been through. This is a wonderful shot in the arm,” said Yvonne Alexander, the co-owner.

“It's probably increased our sales tax collections by four times, and it's at least quadrupled our service business,” she said, adding that many more people now are paying cash.

“We're selling a lot more higher-end trucks, more King Ranches, more Limiteds, more Lariots. It used to be XLTs. Nice but not luxury,” she said.

And, for the first time in decades, there are good paying jobs for almost anyone who wants to work and can pass a drug test. Hiring signs are everywhere. A remark often heard is that there are no unemployed people left in Karnes County, only the unemployable.

“A $20-an-hour job was once unheard of in this county. The part that is most exciting is that if a person wants a job, they can get one and you can work as many hours as you want. This is the American Dream personified,” said Herb Hancock, 71, the newly elected county attorney.

“A kid can leave a $40,000 overtime job at the prison and make over $100,000 in the oilfield. You've got kids coming home to work here who haven't lived here in a long time,” he said.

While few people here pine for the hard old days, when teenagers left after graduation and it took two outside jobs to hold onto the old family spread, there are obvious downsides to the boom.

For those who do not own a home or property, are unable to work, are retired or simply value the quiet and intimacy of a small town, the shale play can be a curse. “You have a lot of people making a lot of money, but basically, it's the people who had money to begin with, people with land, cattle, crops and government subsidies,” said Ken Riley, a Kenedy City Council member. To some, it feels like an ongoing occupation, as pickups, some from Louisiana, Alabama and Montana, roll endlessly through the downtown. Other big trucks, bearing unfamiliar names like “Stallion,” and “Movac,” make driving a daredevil's game.

Rents have doubled or tripled, if you can even find a place, and almost everything else is more expensive, from gas to food to the plumber.

Once-dark country nights now are illuminated by flood lights and roaring natural gas flares, and some say there is a different smell in the air. Tranquil evenings now are marred by the drone of enormous gas compressors and nonstop truck traffic.

Most significant are the societal changes that show themselves in the simplest of ways.

White-haired Peter Bergin, 80, the longtime Irish priest at Our Lady Queen of Peace Catholic Church, now is asked for identification at the Wells Fargo Bank, where he has done business for 22 years.

“Now we find ourselves as strangers. Before, you'd go into the bank and everyone knew you,” he said. “It has gone from a nice, little town where everyone knew each other. Now when you go to a restaurant and you think it's a strange town.”

Among the older ladies at the Karnes County Christian Thrift Center, there are few illusions about the boom. “It's helped a lot of people but it's killed a lot of people. Older people especially,” said Liz Boelter, 62, a customer.

“I think they are destroying the land. The dirt is all loose. It was blowing like in Amarillo,” said Frances Huwe, 78, folding used towels at the counter. Her daughter, Lynn Buehring, 57, is recovering from two wrecks with 18-wheelers.

“I was not at fault. The second one that hit me, the driver was wearing flip-flops,” said Buehring, who is being treated for mouth, shoulder and knee injuries. John James Kotzur, 57, who acquired City Pharmacy after Bordovsky sold out, had his business ruined by Wal-Mart years ago. He now worries about the inequities and societal changes brought by the boom.

“People are a lot more tense. Some are worried about their finances. The well-to-do people are leaving. Things are too chaotic,” he said. “I just hope there is some way that everyone is going to get something.”

Just about every morning, Homer Lott, the ex-mayor of Runge, makes the 15-mile drive to eat tacos with the coffee crowd at Becky's Cafe in Karnes City. He passes the Bordovsky place on each trip down FM 81.

“There used to be cattle in that pasture. Now it looks like refinery city. It won't be long before FM 81 becomes the refinery corridor,” said Lott.

And while Lott, 65, is also cashing nice royalty checks, he worries about what the future might bring, from water contamination to destruction of the countryside.

“What we know as farm-and-ranch country will be totally transformed. It will not look like this in 10 to 20 years,” he said.

“Even the little community of Gillett has changed. All you see are derricks, tanks and flares at night time. I don't think we can grasp the pace of change. People who were gone for five years do not recognize it now,” he said.

“You can't stop change,” he said. “But is there a plan in place for the transformation? Do people even realize it is happening? I don't know if anyone has anything in place to handle it. Somebody needs to start thinking about it.”

There’s not enough money!
There’s too much money!
The wrong people are getting the money!
The buildings are vacant and boarded up!
People are moving into the buildings!

I swear, if it was raining gold coins, there would be people complaining that they had to buy umbrellas.

BTTT

Having grown up in the East Texas oil patch and experiencing several Boom/Bust cycles, I can sympathize with them.

Best thing to do is take the money and buy a nice place somewhere pretty where there ain’t no oil and gas (yet). And damn near anywhere is prettier than Karnes County, even before the Shale Boom.

This lady must be brainless...how did it kill people. The Oil Companies killed people?? (J.R. Ewing...are you still alive???) “I think they are destroying the land. The dirt is all loose. It was blowing like in Amarillo,” said Frances Huwe, 78, folding used towels at the counter. Her daughter, Lynn Buehring, 57, is recovering from two wrecks with 18-wheelers.

Lady, do you know anything about soil?? Or Oil?? I'm sorry about your daughter getting hurt in two wrecks...but try driving on RT 6 from Bolton to Willimantic in Connecticut...

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