Life After Oil

Ten years after the bust, Midland’s energy companies are still laying people off. So why is this town booming?

April 1996By Comments

No landscape in Texas is more scenically challenged than the desert north of Midland. Flat and empty as far as the eye can see, it is an inhospitable place where even mesquite grows reluctantly, low and twisted and spaced far apart. When a cold winter wind blows hard from the northwest—as it was doing on an overcast morning in late February—the sand that once lay beneath a Permian sea whips through the air with such force that it adheres to your hair and your clothes, and if your car is parked, the sand will give it a yellowish sheen in a matter of minutes. “God felt such remorse about what he did to the land,” Midlanders like to say, “that he gave it oil.”

But oil isn’t the only thing of value out here: Midland is in the middle of a real estate boom. Along the north-side loop, shopping centers that were virtually empty three years ago are fully leased, and national chain stores—all of them newcomers to the Permian Basin—are opening everywhere you look: Circuit City, Best Buy, PetsMart, Builders Square, Office Depot, Barnes and Noble, Target, Wal-Mart Supercenter, and more. Undeveloped land beyond the edge of town, which was selling for $2,000 or so an acre just a few years ago if anyone cared to buy it, today is worth at least $6,000 an acre. The desert is blooming with houses—big houses, selling for a minimum of $200,000. And far out into the mesquite country, well past the last subdivision, a band of Cree Indians from Montana has bought land for a new development that is the talk of Midland. It will be built around an artificial lake with four finger extensions, and it will be called Desert Shores. When telling about it, Midlanders describe the shape of the lake-to-be by holding up their right hands with fingers spread, as if to take an oath that this improbable story is really true.

What is still more remarkable is that this boom is taking place even though Midland’s most important economic indicator—the price of oil—remains in the doldrums. April 1 marks the tenth anniversary of the dreadful day when the oil bust hit bottom and crude futures on the New York Mercantile Exchange fell below $10 a barrel, a level at which no oil company could afford to drill a well and few could afford to operate one. The price has rebounded somewhat, settling in around $18, but the oil industry in Midland has shrunk in every way possible: in numbers, in expectations, in myth. The exploration era in the Permian Basin is over. Instead, oilmen talk about exploitation—squeezing every last drop of oil from existing fields and wells.

In the eighties, when oil sneezed, Midland caught a cold. But these are the nineties, and Midland has found that there is life after $10 oil. It is a different kind of life, though, from the swaggering, high-rolling days when any loan officer at the old First National Bank could approve an oil loan but it took two to turn one down. The story of Midland today is the story of post-industrial America: corporate layoffs replacing job security, service-sector jobs replacing oil-industry jobs, two-income families replacing one-income families—and dinner at Outback Steakhouse, not the Petroleum Club. People are worse off in some ways yet better off in others. Almost everyone I met had a story about how the building boom of stores, restaurants, and hospitals has made life in Midland more enjoyable. A taxi driver told me how he was able to have his heart bypass surgery in Midland instead of Houston. A woman who runs an employment firm said she used to drive to Dallas every six weeks to buy discount office supplies before Office Depot opened in Midland. There is more to do in Midland these days, but less money to do it with.

Fred Wetendorf remembers what it was like in the spring of 1986. Today he teaches environmental technology at Midland’s community college, but back then he was the vice president for land and exploration for the Texas American Oil Corporation, a large independent with a $20 million annual drilling budget and operations in fourteen states. He watched with a feeling of helplessness as the price of oil plummeted. “We’d already survived one period when oil fell to twenty-eight dollars [a barrel] when we were forecasting forty,” he says. “At least you could still drill marginal wells then. But at ten, the price you could get for your oil was less than the lifting cost to get it out of the ground.”

He spent most of his last three months with the company dealing with a lawsuit in San Antonio—not that he could have done anything to save the situation had he been in Midland. Texas American won the suit, but soon after, the CEO walked into Wetendorf’s office and told him that the company would be sold. “I had the luxury of firing myself and forty people,” he says. He was 46 years old and out of a job.

As he told his story, Wetendorf was sitting in his cramped, windowless office at the college. It is adjacent to his teaching area, which, with its machinery, pipes, and overhead doors, looks more like a garage than a classroom. His gangly frame, tufts of white hair on the sides of his head, and white mustache flecked with gold contribute to a rather dramatic presence. He is a good-humored man, though the humor often has a rueful tone. When he said things like “the luxury of firing myself,” he smiled at his own use of irony, and his eyebrows and the deep lines in his forehead moved up and down for emphasis.

“I looked for employment with larger independents,” he recalled, “but there was lots of competition for every opening. I felt that my age and the title of vice president were working against me, so I wrote letters saying that I had a prior six-figure salary, but oil was half the price it used to be, and I’d work for half price. I made several cuts, but I never got an offer.”

He sold his house right away, not at a loss, and moved into a smaller one. After it became obvious that he wasn’t going to find permanent employment with an oil company, he decided to try his luck as an independent geologist and opened a downtown office. His former company had let him use the seismic data for areas it wasn’t interested in, and he tried to shop a few prospects around town: He would provide the geological information in exchange for a piece of the action, known as an overriding royalty, if oil was found. He made two deals. The first resulted in a five-well field in which his percentage was worth around $10,000 a year. The second was a dry hole. He had more prospects, but the oil business was just too cutthroat for him to make any money.

“The oilmen who survived could play hardball,” Wetendorf said. “The finder’s fee was a fifth to a tenth of what it had been before the bust. I had counted on getting ten to twenty thousand for a deal. The reality was more like twenty-five hundred to three thousand.”

He went back to school at UT—Permian Basin in Odessa and got a teaching certificate. His wife went to work for the federal government. In 1991 he closed his geology office, and, he said, “I’ve been in education ever since. I’ve gotten very caught up in the reeducation of Fred.” Today he makes $32,000 at the college.

“Some of my students are petroleum engineers who are retraining,” he said. “They’ll move in as professionals making a pretty good living at thirty to sixty thousand a year.” He stopped, and his eyebrows and forehead rose up to punctuate what was otherwise a tiny smile. “See how my standards have come down?”

Tony Best is the opposite side of the coin from Fred Wetendorf—the oil company executive who stayed with his company. But his work has changed almost as much as Wetendorf’s, and he is just as emblematic of what has become of Midland’s oil industry in the decade after $10 oil.

Best is the president of ARCO Permian, a unit of Atlantic-Richfield that didn’t even exist three years ago but has the oil patch buzzing. ARCO used to be like the other major oil companies in the Permian Basin, content to sell off its less productive fields, keep on pumping the productive ones, and just rake in the money. The majors seldom participated in the dealmaking—buying old wells and the geological information to drill new ones—that is the standard way of doing business for most independent oil operators. Deals have a short shelf life; the good ones get snapped up quickly, and multinational companies can’t make decisions fast enough to compete. (In ARCO’s case, all decisions for the Permian Basin had to be approved in Dallas.) The attitude of the majors was that the future of oil, to say nothing of the glamour, was overseas or in Alaska, where Best had been the field manager at Prudhoe Bay—not in the tired old Permian Basin, which has been producing oil since 1921.

But in 1993 Atlantic-Richfield changed its approach. It set up ARCO Permian as a separate company headquartered in Midland, brought in Best as the president, and phased out the entire Dallas bureaucracy and its 1,100 jobs. Today ARCO Permian is almost totally decentralized. It gets its budget from the parent company, but the decisions about how to spend it are made in Midland. The new division is designed to operate like an independent, and it has performed so well—netting in excess of $100 million in each of its first two years—that Amoco and Shell are in the process of forming a partnership to follow ARCO Permian’s lead.

“Independents never liked doing deals with majors,” Best told me. “They think of majors as big, slow, inflexible bureaucracies. Now we have the best of both worlds. We have the financial resources of a major oil company, but we think like independents. We’re aggressive and we’re fast. We can give a yes or no on a deal in three to five days.

“The independents are coming to us. I was at a Christmas party at Midland Center, and a man walked up to me while I was waiting in the bar line and said, ‘I’ve got ten million to invest before the end of the year. Do you have anything?’”

Best doesn’t have the weathered look that is typical of many independent oilmen, but neither does he fit the haughty CEO stereotype. At 46, he has the breezy enthusiasm of a real estate developer, especially when he is talking about the future of oil in Midland.

“The Permian Basin has produced thirty-seven to thirty-eight billion barrels of oil and gas equivalent in seventy-five years,” he said. “It’s still producing two million barrels a day. That’s thirteen percent of U.S. production. There’s eight and a half billion barrels of proven reserves left, and another ten to twenty billion in potential reserves. That means there’s at least another Prudhoe Bay right here.

“The trick is to get it out of the ground. We won’t be doing much wildcatting. Most of our drilling will be inside existing fields, or trying to extend them, using new technology. The future is exploitation, not exploration.”

But the change in ARCO’s structure and personality has not been achieved without cost. Three years ago ARCO employed 500 people in Midland. Today it employs 130. The entire drilling department is gone; the work that once paid the salaries of more than thirty people has been contracted to an outside firm. A lot of other jobs formerly performed by ARCO employees—maintenance, for instance—likewise have been, as the jargon of the day puts it, “outsourced.” ARCO still has to pay for the work, of course, but it doesn’t have to pay social security, unemployment, health benefits, or pensions.

The same story has been repeated all across town—though not necessarily to the same extent—as other companies have downsized. The layoffs have been cushioned, at least for professionals, by the fact that the big oil companies have always had good pension and stock-acquisition plans. Some longtime employees could leave with retirement packages of $500,000 to $1 million, including generous severance pay. Other laid-off workers have stayed in the oil business as consultants, to be hired back by the very companies that let them go—doing the same work for half the pay and none of the benefits.

So why is Midland booming at a time of layoffs in its biggest industry? The answer lies in a statistical quirk. In 1992 Midland and Odessa stopped their feuding long enough to persuade the U.S. Census Bureau that the two cities, though twenty miles apart, are really one metropolitan area (never mind that Odessa, the blue-collar oil-field service and refining town, deeply resents Midland, the white-collar entrepreneurial and corporate town). The combination makes Midessa, or if you prefer, Odland, the largest metropolitan area between Dallas-Fort Worth and El Paso and puts it on the economic radar screen of the nationwide stores. But Midland has been the big winner, scooping up the most sought-after stores because of its higher per capita income. Odessa traditionally had higher annual retail sales than Midland, but the influx of new stores has boosted Midland into a lead it will not soon relinquish. While Midland gets more and more big stores—a million square feet in the past two years—Odessa looks forward to the arrival of its first Chili’s.

The retail expansion, however, doesn’t explain all those new houses in the desert; the commercial growth is a middle-class boom. Some of the big homes are being bought by doctors prospering from an increase in hospital beds and independent oil operators prospering from oil wells bought from the majors, but some are being bought by families who are moving up only because they have two wage earners.

Midland is a different city today than it was during the bottom of the oil bust, and it is likely to change again in the coming years. Public school enrollment, following the pattern of modern American cities, is now 35 percent Hispanic and 10 percent black. Not too many years in the future, Midland will be a majority minority school district. The oil industry, which provided one job in every six in 1990, now provides one in every nine. That fraction will continue to decline as other layoffs occur. Like the rest of America, Midland faces an uncertain economic future. But ten years after $10 oil, uncertain is better than none.

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