Rick Stoneburner remembers the 2008 Texas-Oklahoma football game as a thriller, highlighted by the Longhorns’ dramatic second-half comeback. But for Stoneburner, the day’s biggest excitement came before he took his seat at the Cotton Bowl, when he learned that Petrohawk Energy’s wildcat well in La Salle County had hit natural gas—and lots of it.
For months, Stoneburner, who was Petrohawk’s president and chief operating officer at the time, and a team of oilmen had been pursuing their hunch about hydrocarbons locked in the South Texas shale. They had scooped up leases on 160,000 ranchland acres, agreeing when necessary to cease work during deer-hunting season. Now they had hit pay dirt. “Ten months to ten tcf,” Stoneburner says with a laugh, referring to the estimated 10 trillion cubic feet of natural gas they discovered. But the timing was terrible: the stock market was crashing, and oil and gas prices were at half their summertime highs and falling. Against that backdrop of glum economic news, the Eagle Ford boom was born.
In little more than four years, the oil and gas from that field has rocked Texas and the rest of the country. Late last year, the International Energy Agency made the startling projection that the United States could briefly surpass Saudi Arabia as the world’s largest oil producer in the next decade and could be nearly energy independent by 2035.
No one could have foreseen those projections even five years ago, when the state’s energy business was still in a twenty-year slide. Within months after that first Petrohawk well, oil prices sank below $40 a barrel, down from around $140 in the summer of 2008; natural gas eventually dropped below $2 per thousand cubic feet, from a high near $11. Luckily for Petrohawk and a couple of other Eagle Ford producers, oil was found in the shale too, and when prices rebounded to between $80 and $100, the gold rush began. But just like every other boom, this one comes with a barrelful of risks, from pollution to a drain on water supplies. Plus, there’s always the ultimate fear that the next bust is lurking around the corner.
Today, the mostly rural area of the Eagle Ford—about fifty miles wide and four hundred miles long, running across roughly two dozen counties—is thick with truck traffic. Last year, the Railroad Commission issued more than 4,100 drilling permits for the shale, up from just 26 in 2008. Oil production in 2012 jumped to about 352,127 barrels a day, up from 127,965 barrels a day in 2011.
Real estate prices are soaring in places like Beeville, Karnes City, and Kenedy, and towns that once boasted two or three hotels now have twice as many, with more on the way. A new H-E-B opened in Gonzales last year, and a Walmart Supercenter is under construction; another H-E-B will open this month in Carrizo Springs. Dimmit County, once home to two RV parks, now has more than sixty, and dozens of “man camps” have sprung up that can accommodate hundreds of oil field workers each. Housing is so scarce that the Cotulla Independent School District even had to build a small RV park on its property to give new hires a place to live.
All this growth presents a challenge, of course. Local school districts, for example, are struggling to keep employees, who are being snapped up by the energy companies. After limping through a school year with half the necessary cafeteria staff, Cotulla has added a $1-an-hour stipend for custodial, cafeteria, and maintenance workers. “We really can’t compete with the oil field,” says superintendent Jack Seals. The Carrizo Springs Consolidated Independent School District is building a new high school, which will accommodate up to two hundred more students, but demand for materials is so high that the cost for concrete alone is $3 million over budget.
The district’s tax base has swelled to $2.5 billion from $441 million in two years, and total enrollment is up. The surge means that Carrizo Springs—and districts like it—is now “rich” by legislative standards and will have to send millions of dollars back to the state next year. It’s an unexpected jolt. “I’ve been here forty years,” notes Deborah Dobie, the Carrizo Springs superintendent, “and we’ve been poor for thirty-eight of them.”
Local hospitals, most with no more than fifty beds, have also felt the crunch. At Gonzales Healthcare Systems, emergency room visits have climbed to as high as 900 a month, up from about 600 two years ago, says Chuck Norris, the company’s CEO.
The frenetic activity isn’t limited to just the Eagle Ford. Out in West Texas, the old Permian Basin has found new life. Last year the U.S. Bureau of Economic Analysis noted that per capita income in Midland topped $65,000 in 2011, making it the second-richest metro area in the nation, behind the hedge-fund enclave formed by Bridgeport, Stamford, and Norwalk, Connecticut.
Renewed production of natural gas liquids like propane and butane is fueling a petrochemical boom too. ExxonMobil, Chevron Phillips Chemical, and Dow Chemical, among others, have recently announced plans to build or expand petrochemical plants along the Texas coast. All of this is plumping up the state’s finances. Oil production and the related taxes reached a record $2.1 billion in fiscal 2012, and oil and natural gas taxes combined are expected to add $5.3 billion to the state’s Rainy Day Fund by 2015. Some of those funds could go to improving roads and addressing growing water needs.
The booming revenue comes at a cost, however. Fracking in particular requires large quantities of water, and the state’s ongoing drought means energy companies will need to recycle water and maybe even import it. In addition, environmental concerns could lead to regulation that discourages drilling activity.
But the biggest issue is—and always will be—price. The recent history of natural gas offers a cautionary tale. After prices dropped by more than half following the financial crisis, the drilling-rig count collapsed. Last year, natural gas production was almost flat in the Eagle Ford Shale and sharply down in the Barnett Shale, around Fort Worth.
While gas prices are set domestically, oil prices are set in a worldwide market. Today’s relatively high oil prices make the current boom possible, since drilling in the Eagle Ford Shale is economical only when the price is roughly $60 to $65 a barrel (at press time, the price was $90). By contrast, some Middle East producers can make a profit even when oil is below $10 a barrel.
A serious recession in Asia, like the one that sent oil prices crashing in the late nineties, or a Saudi Arabian desire to grab market share, which halted the mid-eighties Texas oil boom, can end the party. Neither is likely at the moment, but energy fortunes tend to turn quickly and with little warning.
In South Texas, they’ve seen booms and busts before, and they know the good times don’t last forever. “A lot of the older people don’t get too excited,” says Paula Seydel, the manager of the Dimmit County Chamber of Commerce Visitors and Information Center. “They say, ‘They’re going to come, and they’re going to go.’ ”