Pray for an oil boom
Mon January 31, 2011 7:05 pm

Mid-way through a day of bleak testimony in Senate finance about impending cuts in the $10 billion range to public education, Sen. Florence Shapiro lamented that "the stars" are completely un-aligned with regards to Texas schools: state general revenue has dropped, property tax values have dropped -- and the number of school-aged kids is booming.

Monday was a steady diet of  bad news for budget makers: the doors of many programs serving the most vulnerable Texans --  from autistic and blind toddlers to the frail elderly  -- will soon slam shut.

Where does that lead serious-minded lawmakers, who have to write a budget in an anti-tax atmosphere fomented by both Gov. Rick Perry and Lt. Gov. David Dewhurst?  Praying for another oil boom?

Apparently, that's not so out of the question. Oil and gas industry insiders believe  that South Texas' Eagle Ford Shale promises to surpass North Texas' Barnet Shale in potential reserves.  And the Eagle Ford Shale holds both oil and gas. Some experts believe that it could be the sixth largest oil and gas formation ever discovered in the U.S.  One breathless blog says there could be billions of barrels of oil and trillions of cubic feet of gas. To put it in perspective, it could  rival the historic East Texas Field in impact on the oil and gas industry and Texas.

Stretching in a 50-mile swath from Gonzales south to Webb and Gonzales Counties, the Eagle Ford Shale was the site of 1,018 new drilling permits in Texas last year, compared to 94 the year before, according to the Texas Railroad Commission.

Landowners in the area report that drilling and oilfield supply companies have begun booking up the smalltown hotels and motels for a solid two years. But that's nothing compared to royalty payments that exploration companies are promising. Not that many years ago, the standard royalty paid to landowners was one-eighth; that rose to 25 percent in the boom years of the Barnet Shale activity.  In Eagle Ford, royalties of 30 percent are being promised.

That's because technology has taken much of the risk out of drilling. With 3-D imaging available, wells are highly likely to produce, thus taking the risk out drilling dry holes.

Like the old saying goes: Lord, give me one more oil boom and I promise not to screw it up this time. A spike in oil and gas production could have an enormous impact on the Texas economy -- and treasury. According to the Houston Chronicle, the oil patch accounted for 8.5 percent of the Texas economy, and 11 percent of all new jobs added last year.

Meanwhile, investment in the Eagle Ford Shale is only beginning: According to the Chronicle:

In October, China's CNOOC agreed to pay $1.1 billion for a 33 percent stake in Chesapeake's Eagle Ford acreage, marking its first U.S. onshore asset purchase. That same month, Statoil said it was joining forces with Canada's Talisman and would pay Enduring Resources $1.3 billion to develop Eagle Ford acreage.

In June, India's Reliance shelled out $1.3 billion to buy acreage and form a joint venture with Pioneer Natural Resources Co. And earlier in the year, BP and Shell bought into the play. Exxon Mobil Corp., the world's largest public oil company, also has a position in the Eagle Ford.

Really? The Chinese?  Is it time to think about an increase in the oil severance tax? Who better than the Chinese as a partner in funding education for Texas school kids?

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