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Booming Oil Towns Prepare for Inevitable Bust
Real Clear Energy ^ | October 16, 2013 | Pat Sullivan

Posted on 10/16/2013 4:47:50 AM PDT by thackney

MIDLAND, Texas -— In a faded West Texas town dotted with vacant buildings and potholed streets is a sparkling storefront window and a curious display: rows of diamond-studded Rolex watches, awaiting buyers whose pockets are packed with oil money.

The surge in oil drilling has drawn money and men like a magnet to run-down communities that haven't seen a boom since the 1980s.

But leaders and residents here are increasingly mindful that the runaway riches tapped by hydraulic fracturing will eventually run out. And they are determined to live by a fondly remembered bumper sticker from the last bust: Please, God, give me another oil boom — and I promise not to blow it. So some towns are taking steps to ensure they land softly rather than crash into economic ruin.

"Don't go overboard. It's not going to last," Midland Mayor Wes Perry wants to shout, as a reminder to his own neighbors and a warning to communities in Pennsylvania and elsewhere that have never boomed like this, let alone endured a bust on par with the one Texas experienced a generation ago.

For now, Midland is the picture of prosperity. Since 2008, sales tax revenue has shot up from $24 million a year to more than $38 million in 2013. The unemployment rate is the lowest in Texas, hovering just above 3 percent. The town has hundreds of unfilled jobs.

A local Subway pays $15 an hour with a $1,000 starting bonus. Housing is so scarce that modest hotel rooms go for $300 a night.

This, longtime residents know, is what an oil boom looks like. And it's always been followed by a steep, painful decline.

When the energy market finally fades, the town wants to avoid being burdened with crushing debt or too many employees. So sales tax revenue is used only for one-time projects, such as street repairs. Police officers are hired piecemeal, two or three a year, as the population increases.

Instead of using municipal money to lure an investor to build a proposed high-rise project, the city will instead provide an 80 percent tax break on revenues for five years.

"Companies don't screw up in bad times. They screw up in good times. Same for cities," Perry said.

That lesson was learned a generation ago. Midland and Odessa, along with parts of North Dakota, boomed in the late 1970s. The windfall enabled people to buy jets and Rolls-Royces and build mansions and lakefront homes. Then in the early 1980s, the bottom fell out of the oil barrel.

The same people went bankrupt. Home foreclosures skyrocketed. Banks failed. People moved away. Homes and downtown buildings were abandoned.

"It was awful to live through that," the mayor said, recalling "Black Friday" — Oct. 14, 1983. That is the day the First National Bank of Midland, which lent money so people could finance lavish lifestyles, collapsed under the weight of a plummeting oil market. The "majors" — or big oil companies — fled for greener pastures abroad.

The most recent boom has largely been ushered in by new hydraulic fracturing technologies combined with horizontal drilling. Those systems allow once out-of-reach oil and gas to be extracted from rock.

The big boys are back, and Midland and Odessa have seen their populations rise by at least 10 percent since 2010, not counting all those living in trailers or trucks.

It's the newcomers, suddenly earning $2,000 and more a week, who are spending, said Judy Farris, general manager of The Bar in Midland and a lifelong resident.

"You can tell the difference between the people who have been here and been through it and those that haven't," said the 58-year-old.

"People are enjoying their money, but they're wiser," she added, sitting in the darkened tavern and restaurant where local lore says countless multimillion-dollar oil deals have been cut on the backs of napkins and with a handshake over a beer.

Rolls Royce hasn't reopened its dealership. There aren't as many mansions going up. And Perry is taking heat for offering tax breaks for the proposed high-rise.

"They've been through this before. They believe when this happens, the bust is upon us," Perry said.

Just ask those in North Dakota's oil patch. Williston, in the heart of the Bakken shale petroleum reserves, was left in the 1980s with $28 million in debt and saddled with abandoned trailer parks.

But now the state leads the nation in population growth, boasts a nearly $2 billion budget surplus and has the lowest jobless rate in the nation, as well as 21,000 unfilled positions. A study released in July estimates Williston's population has doubled since the 2010 census to between 25,000 and 33,000 people. And that may not account for all those in "man camps," the hastily built communities of tents and trailers that house thousands of oil workers.

Mayor Ward Koeser believes the city is doing a better job than it did in the 1970s.

"The big thing is it's given us opportunity," he said. "We were too small and too remote to make things happen without it."

Some decisions, however, indicate memory may be short. Williston is building a community center so large a Walmart Supercenter could fit inside. Funded by the city's sales tax collections, it will have an Olympic-size swimming pool, basketball and tennis courts, a running track, a golf simulator, and other features.

It's designed to keep oilmen busy when they aren't working and encourage their families to move in, Koeser said.


TOPICS: News/Current Events; US: Texas
KEYWORDS: energy; oil; shale

1 posted on 10/16/2013 4:47:50 AM PDT by thackney
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To: thackney

The 1980s oil bust is what kept me from becoming a petroleum geologist. Saw it coming about six months before it hit and changed my major. Everyone at the time thought I was nuts. But folks who were in the program with me didn’t have jobs in their field a decade later. Hopefully they are doing well now.


2 posted on 10/16/2013 4:58:51 AM PDT by dirtboy
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To: dirtboy

I can relate. I wanted to be a nuclear engineer about the time of Three Mile Island.


3 posted on 10/16/2013 5:04:05 AM PDT by thackney (life is fragile, handle with prayer)
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To: dirtboy

I was in Midland in the early eighties, there were no homes or apartments available. Lived in the Holiday Inn for 4 months, never stayed in one again;^)


4 posted on 10/16/2013 5:14:57 AM PDT by seeker41 (take your country back by whatever means necessary)
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To: dirtboy

We had geologists working in the file room at Chevron, hoping to stay close to their field in case things came back. They never did.


5 posted on 10/16/2013 5:44:16 AM PDT by Cowboy Bob (They are called "Liberals" because the word "parasite" was already taken.)
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To: thackney

My wife and I moved to Odessa about a month ago, and we love this place! I’ve been through two booms and busted out each time so we aren’t driven by the big money which is here in abundance. After working in the food ministry in Tennessee for the past year, it is certainly a breath of fresh air to see jobs everywhere and happy, prosperous people. I was in town less than twelve hours and found what I can only describe as the perfect job; working as a gunsmith in a West Texas gun shop.

All of the old timers talk about the boom and bust cycles, and they all say that another bust will come. When is the question.


6 posted on 10/16/2013 5:46:31 AM PDT by Big_Harry (--. --- -. . / --. .- .-.. -)
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To: thackney

We just passed Saudi Arabia in oil production.
I’m sure Bam bam’s Arabian masters let him know about it ......
USAUSAUSAUSA!!!!


7 posted on 10/16/2013 5:56:40 AM PDT by tumblindice (America's founding fathers: All armed conservatives.)
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To: thackney

My family has been in the oil industry for about 100 yrs and have witnessed many booms and busts. My father had seen it before and that’s why he took the offer to sell his drilling company and mud company in 1980. He always told me that it is either chicken or feathers.

Danial Yeargin’s book the Prize points out the booms and busts that have occurred ever since Col. Drake drilled the first well in 1859. Anyone involved in the current boom would be well advised to put something back.


8 posted on 10/16/2013 5:58:35 AM PDT by Okieshooter
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To: Okieshooter

Smart dad. Mine sold out in ‘82. Always said it was chicken one week, feathers the next.


9 posted on 10/16/2013 6:04:43 AM PDT by Black Agnes
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To: Okieshooter
My favorite family picture, my father and uncle as kids on the floor or a drilling rig in 1922.Photobucket Pictures, Images and Photos
10 posted on 10/16/2013 6:05:48 AM PDT by Okieshooter
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To: thackney
town dotted with vacant buildings and potholed streets

Just described every town in the US boom or bust. Interviewing the mayor about preparing for a bust as he builds a new skyscraper in a faded west Texas town with vacant buildings and on the tax payers dime. BTW Midland was a thriving town before the boom. Also the article did not mention the boom is expected to last 15 to 20 years. The media sucks.

11 posted on 10/16/2013 6:06:03 AM PDT by steelwheels
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To: tumblindice
We just passed Saudi Arabia in oil production.

Maybe if you count items beside oil as oil production.

But in actual crude oil production, no. Not even close.

U.S. Production of Crude Oil = 7.487 million barrels a day.
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS2&f=M

Saudi Arabia Production of Crude Oil = 9.840 million barrels a day.
http://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=50&pid=57&aid=1&cid=SA,US,&syid=2013&eyid=2013&freq=M&unit=TBPD

You have to count Natural Gas Liquids, Refinery Processing gain, etc before the US to get to those misleading numbers.

12 posted on 10/16/2013 6:06:53 AM PDT by thackney (life is fragile, handle with prayer)
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To: thackney

The only downside I see in the booming economy in Texas
is all the New York, Illinois, Michigan, etc. license plates
I see on the road here in Houston. We’re being invaded by
the slum rats that fouled their own nest and are moving to
greener pastures to foul.


13 posted on 10/16/2013 6:19:44 AM PDT by Slambat
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To: thackney; All
One geologist in the Permian Basin I talked to about a year and a half ago told me there is at least 17 years left to this boom, given the current technology. Also, others I have spoken to have stated that fracking is cost effective so long as the WTI price is above $30/bbl.

I see constant nailbiting from people involved in crude and sand transportation by rail and it's constantly over the "spread"... there is a lot of money to be made and capital needs to be spent to efficiently bring crude to market.

Anyways an article saying that towns are bracing for some imminent bust, is just a bunch of fear mongering... sure, it will happen (bust), but rapture can come at any time... let's, in the meanwhile, make some coin.

14 posted on 10/16/2013 6:28:49 AM PDT by Rodamala
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To: Rodamala

Mansions should be built with old folks in mind for bust. They can maintain the places in retirement until the boom hopefully returns.


15 posted on 10/16/2013 6:32:06 AM PDT by DIRTYSECRET (urope. Why do they put up with this.)
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To: thackney

Midland and Odessa aren’t the only ones. I traveled through Guymon OK and Woodward a few months ago. Oil money everywhere! Lots of oil money in central OK again.

Farmington NM is again booming. Wish I was there but my worthless brother-in-law(If you know him he probably owes you money) is fouling up the area.

When the bust comes again, it will hurt as it did 58 years ago.


16 posted on 10/16/2013 6:39:35 AM PDT by Ruy Dias de Bivar (Sometimes you need 7+ more ammo. LOTS MORE.)
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To: steelwheels
Also the article did not mention the boom is expected to last 15 to 20 years. The media sucks. 

Exactly so. So long as oil isabove $70/bbl. the fracking will continue. Besides, with the multi-billion investment by the oil companies, increasing world demand for oil and gas the incredibly huge fields, this boom isn't going anywhere for a while.

17 posted on 10/16/2013 6:49:29 AM PDT by Ancesthntr ("The right to buy weapons is the right to be free." A. E. van Vogt)
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To: Slambat
...all the New York, Illinois, Michigan, etc. license plates...

I'm not saying you're wrong, but:

New York, Illinois, and Michigan are all beautiful places that are stuck with a giant urban hellhole.

I think it's likely that most of the transplants come from parts of those states not named Detroit, Chicago, or NYC.

18 posted on 10/16/2013 6:52:12 AM PDT by j. earl carter
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To: Slambat

“We’re being invaded by the slum rats that fouled their own nest and are moving to greener pastures to foul.”

I see the same thing in ND, about every other license plate is from a different state. With this the crime rate is going up in places like Williston.

But most of them are the ones that want to work, many listen to Rush Limbaugh and tend to vote Republican.

The typical slum rat of a democrat run city has no reason to go where the work is.


19 posted on 10/16/2013 7:15:07 AM PDT by redfreedom (Republicans = The faux conservative wing of the democrat party.)
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To: thackney

Oil town prepared for a bust? Boy that’s a laugh when talking about public sector spending in Republican Midland County.

The various taxing entities in the county are currently up to 831 million dollars in principal and usury debt and the perfumed princes at MISD are promoting ANOTHER school bond——this one to be for half a billion plus interest.

The poobahs in Odessa are jealous and are energetically trying to pass Midland in indebtedness.

New California-— errr, I meanTexas, has around a third of a trillion dollars in local debt.


20 posted on 10/16/2013 11:08:15 PM PDT by Rockpile
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To: thackney

If any towns deserve to be busted, they’re the outlining DC towns living high off the taxpayer.


21 posted on 10/16/2013 11:18:48 PM PDT by Gene Eric (Don't be a statist!)
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