Bloomberg News

Texas Oil Boom Fueling Trucker Bonuses Propels Odessa

August 06, 2012

Truckers can get $5,000 signing bonuses from companies serving Odessa, the West Texas center of a new Lone Star State oil boom and the nation’s fastest-growing city.

Housing is so tight that the local school district put deposits down on 15 apartments, to ensure that new teachers moving to the area would have places to live.

Union Pacific Corp. (UNP:US) is adding tracks and railyard facilities to help trains handle flows of drilling supplies coming in and crude oil heading out. The rising prosperity, driven by new extraction technologies and hydraulic fracturing, has unleashed an economic surge that is transforming Texas’s “petroplex” of Odessa and nearby Midland.

“It’s like we just discovered oil out here,” said Mike George, the 65-year-old head of the Odessa Chamber of Commerce. A development rush will add 13 hotels, 2,500 houses, industrial parks and the first new apartment buildings in 15 years in the city 350 miles (560 kilometers) west of Dallas.

Midland and Odessa, which ranked first and second among U.S. cities in average annual growth rates for the past decade, according to a study from the U.S. Conference of Mayors, sit atop the Permian Basin, one of the nation’s richest stores of petroleum. Oil booms have come and gone before in both cities.

The area’s first oil well, in 1926, extracted 20 barrels of crude a day. Last year, the Permian Basin produced 280 million barrels, or 14 percent of U.S. output, according to the Texas Railroad Commission, which regulates the industry.

Lasting Impact

Past busts have had lasting effects, George said.

After oil prices plunged by two-thirds from November 1985 to March 1986, Interstate 20, a local highway, “looked like a business graveyard,” George said. “Many buildings were boarded up and there wasn’t a vehicle in sight.”

“In previous booms, there was a lot of glitz and flash,” he said. “This time, businesses are being very conservative. Everyone is paying for things with cash.”

The boom’s downside shows up in rising demand for help from food pantries as people living on fixed incomes must pay more in rent, according to the Odessa branch of Catholic Charities Community Services Inc. At the same time, the promise of job opportunities has lured people to the area with little money, and they often can’t find adequate housing, according to Tom Pursel, United Way of Odessa’s executive director.

Fracking’s Benefits

Hydraulic fracturing, or fracking, and horizontal-drilling techniques have unlocked reserves that couldn’t be extracted economically in the past. Permian Basin wells reached the 1 million barrel daily production threshhold in 2011 for the first time since 1998, U.S. Energy Department figures show.

Climbing oil production, as well as natural gas output, helped push Texas tax revenue up 14 percent to $36.4 billion through June, compared with the same period a year earlier, according to state estimates released last week. Taxes from oil and gas extraction have soared 49 percent, while the number of active drilling rigs in the Permian Basin jumped to as many as 500 this year, compared with 100 in 2009.

“Oil and gas is what’s driving the positive revenue report, more than any other sector,” Mike Reissig, associate deputy state comptroller, said at a Legislative Budget Board meeting last week. The industry accounts for 17 percent of economic activity in Texas, the second-largest U.S. state by population and the biggest producer of crude.

California Bound

So much oil is being extracted that a pipeline from the basin to Houston-area refineries is filled to capacity. Now trains and trucks carry West Texas crude to plants as far away as California, according to Guy Andrews, the Odessa chamber’s economic development director.

Apache Corp. (APA:US), which had 5 active rigs in the basin in 2010, averaged 25 last year and now has 36, said Robert Dye, a spokesman in Houston. The company will drill about 760 wells this year, up from 507 in 2011 and 263 in 2010.

In Odessa, a sun-scorched desert community of about 100,000, the economy will expand by 9.7 percent this year, more than five times the average U.S. metropolitan area’s growth rate, the mayor’s group said last month, citing a study by IHS Inc.’s Global Insight economic-forecasting unit in Lexington, Massachusetts.

In the decade through 2011, Odessa’s economy more than doubled, growing at an average 9 percent annual rate, trailing only Midland’s 9.1 percent pace, according to the IHS study. The expansion has been a boon to Odessa Mayor Larry Melton, 74.

‘Great Time’

“It’s been a great time to be mayor,” Melton said, ticking off the five fire trucks, three fire stations, eight “top-of-the-line” ambulances and a water park added by the city in the past three years. He said property tax rates have been cut in eight of his 11 years in office.

Retailers are cashing in, as local sales-tax collections have surged 26 percent compared with a year earlier, when receipts rose 25 percent from 2010, state records show. Chain stores, including Best Buy, Kohl’s and Marshalls are moving into shopping centers that are being developed at the city’s edge.

At Paul Evans Carpets in downtown Odessa, owner Paul Evans, said sales have jumped 25 percent this year. He had just visited a customer in a gated residential subdivision where homes as large as 10,000 square-feet (930 square-meters) are being built on oversized lots.

“There’s probably more money floating around the Permian Basin than ever before,” said Evans, a 51-year resident.

Lowest Unemployment

The Odessa area’s 4.9 percent June jobless rate, down from 6.5 percent a year earlier, is the state’s second lowest, trailing only Midland’s 4.3 percent, the Texas Workforce Commission said last month. The statewide average was 7 percent.

In addition to enticing truck drivers, local employers are offering signing bonuses for such low-skill jobs as hospital housekeepers, and for physical therapists and hair stylists, according to Internet job listings. Salaries as high as $95,000 a year for truckers have lured workers from other occupations.

Oil companies are bringing in hundreds of employees to work the fields, filling area hotels and motels to near-capacity and driving up rates. Some companies are also importing housing.

Goliath Industries LLC will open a 52-acre “man camp” in Odessa with modular living quarters for 1,000 workers this fall, said Ed Parker, regional sales manager for the Grand Junction, Colorado-based company. Goliath typically charges $100 to $150 a night per person for housing, with contracts that run as long as two years.

‘Man Camps’

The Odessa camp will offer private rooms with baths, meals and entertainment and exercise facilities, Parker said. Four more companies plan to open such temporary housing, Mayor Melton said, easing a crunch that includes an eight- to 12-month wait for new homes.

D.R. Horton Inc. (DHI:US), the nation’s largest homebuilder by volume, is among those rushing to meet demand for living space in the region. Odessa’s median home-resale price rose 8.6 percent to $152,000 in June from a year earlier, according to Seattle-based information provider Zillow Inc. By comparison, the average price statewide barely budged, rising 0.3 percent to $175,600, according to Zillow.

Higher-quality one-bedroom apartments fetch as much as $1,200 a month, prices that complicate efforts by local schools to attract new teachers, even with starting annual salaries raised to $45,000, said Brian Rosson, a human resources director with the Ector County Independent School District. He put deposits on apartments to make them available to new staff and said some district employees have agreed to rent rooms to newcomers until they can find more permanent housing.

“I’ve never seen anything like this” in 30 years of living in Odessa, Rosson said.

Tough Times

The boom lures some who “are coming on a shoestring,” United Way’s Pursel said. “They don’t have a pile of money. They can’t find adequate housing; they’re living in substandard conditions.”

Rising rents have strained people with fixed incomes, Faye Rodriguez, the local Catholic Charities executive director, said in an interview.

“Requests for food assistance are at an all-time high,” Rodriguez said. Her agency usually distributes about 200 boxes of food a week. On one recent day, it handed out 64, she said.

“The boom has created opportunities for many people,” she said. “It’s not across the board.”

While past busts have been painful, the current boom appears to have more staying power, thanks partly to new drilling techniques, the chamber’s George said.

Bright Future

“With this new technology, we’re looking at many decades of exploration and production,” George said.

The market may be helping to sustain the boom as well. Oil futures have averaged more than $85 a barrel in New York commodities trading for the past five years, even with a collapse to $32.40 in the midst of the financial crisis.

City and business leaders see more than oil in Odessa’s future, however.

West Texas Angelos Holdings LP plans a 520-megawatt solar- powered electricity-generating facility in the region, and Summit Power Group LLC is developing a coal-gasification plant in nearby Penwell with the help of a $450 million federal grant, said the chamber’s Andrews. Duke Energy Corp. is adding a 36- megawatt storage system to its Notrees wind farm, 24 miles to the west, which can produce as much as 153 megawatts.

“We are going to be the energy capital,” Andrews said. “We already are on oil.”

To contact the reporter on this story: Kathy Warbelow in Austin at kwarbelow@bloomberg.net

To contact the editor responsible for this story: William Glasgall at wglasgall@bloomberg.net.


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Companies Mentioned

  • UNP
    (Union Pacific Corp)
    • $106.86 USD
    • -2.00
    • -1.87%
  • APA
    (Apache Corp)
    • $73.87 USD
    • -1.66
    • -2.25%
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