Posted on 19 January 2014.
Texas’ Eagle Ford Shale Play Making Crude Millionaires Overnight
THREE RIVERS, Texas– Not long ago, Richard Dockery was a real estate and insurance broker in this town of 1,800 residents, putting together small land deals and cobbling together a nest egg for retirement.
Today, Dockery, 47, lives in a new, 2,400-square-foot home that he bought with cash and will have his 23-year-old daughter’s medical school bills covered before she steps into her first classroom.
Once a month, a six-figure check in his name arrives in his mailbox from an energy company — royalties earned by leasing his property to oil companies and co-owning wells. It’s one of several that appear in his box each month that, added up, equal roughly the annual salary of a midlevel NBA player.
“It’s crazy,” Dockery says. ”And I’m small fry. There are literally thousands of people out here who are millionaires, and some who are going to be billionaires. It’s the wild, wild West.”
Dockery and this small city, 75 miles south of San Antonio, are at the epicenter of one of the biggest oil booms ever to hit Texas — and possibly the USA. A vast oil and gas reservoir in South Texas known as the Eagle Ford Shale, along with another in West Texas known as the Permian Basin, is driving the boom and could make Texas one of the leading oil producers on the planet.
Advanced drilling technology, such as hydraulic fracturing, or “fracking,” and horizontal drilling are unlocking huge reservoirs of oil previously deemed impossible to reach, doubling the state’s crude oil production the past two years.
This year, Texas is projected to produce more than 3 million barrels a day — moving it ahead of Kuwait, Mexico and Iraq to become the eighth-largest oil producer in the world.
The U.S. still imports far more oil than it exports, due in part to a law restricting crude oil exports. Last year, the U.S. imported about 7.5 million barrels a day, while exporting only about 100,000 barrels a day, according to the U.S. Energy Information Administration. The exports ban, dating to the Arab oil embargo of 1973, is now being challenged by lobbyists and lawmakers because of the huge amounts of oil being produced, primarily in Texas and North Dakota.
Energy companies are likely to invest more than $100 billion in Texas in the next few years to extract oil from the shales. In 2011 alone, the boom created more than 38,000 jobs in South Texas and poured more than $500 million into local and state coffers.
It’s not just oil companies and counties profiting. Ranch owners who previously had only scrub bush and white-tailed deer on their property are leasing their land for millions of dollars a month. Schoolteachers lucky enough to have oil beneath their yards have left their jobs to travel the world or open boutiques. Small-town real estate brokers, like Dockery, have become overnight millionaires by selling plots of land that once sold for $2,000 an acre for 100 times that much.
This is the latest in a string of Texas oil booms — and perhaps one of the biggest — since Anthony Lucas punched a hole in Spindletop Hill near Beaumont in 1901, thrusting the country into the modern petroleum era. The Spindletop discovery and another one in East Texas in the 1930s at the time made Texas the largest producer of oil in the world. This one is far bigger.
“It’s as significant as the discovery of oil itself,” says David Arrington, a Midland, Texas, oil executive who made nearly $900 million plumbing for natural gas in North Texas eight years ago. Today, he’s investing “every penny of it” in the Permian Basin.
Boom Brings Headaches
But for every story of overnight riches, there are tales of the boom’s potentially negative impact: overpowering chemical smells near wells; residents waking up in the middle of the night with headaches or nosebleeds; threats to drinking aquifers; roads banged up by oil trucks and spikes in traffic fatalities; soaring rents; and even earthquakes.
“It’s brought money to people overnight,” Three Rivers Mayor Sam Garcia says of the boom. ”But it has its own set of challenges.”
Hydraulic fracturing, or “fracking,” where water, sand and other materials are injected into underground rock formations at high speeds to free pockets of fossil fuels, and horizontal drilling have been used for years, mostly to harvest natural gas. But oil’s high price, hovering at around $100 a barrel, has given energy companies unprecedented financial resources to put the technology to work for crude.
Today, more than 7,000 oil and gas wells have been drilled or are scheduled to be drilled along the Eagle Ford Shale, a crescent-shaped formation 4,000 feet underground that stretches 400 miles along the Texas-Mexico border. The technology used in South Texas could soon migrate to similar shales around the world, unlocking billions of gallons of more crude and buying valuable time to develop alternative energy sources, Tinker says.
Just how much crude is down there? That’s been a point of hot debate in the industry.
Given the current rate of extraction and number of wells, the shale could produce for another five to 10 years, then become mostly dry, says Arthur Berman, a Sugarland-based petroleum engineer and shale skeptic. The technology that reached the tucked-away crude is also sucking it out at record speeds, he says.
“We’ve been given a gift, a reprieve, from where we thought we were a few years ago,” Berman says. “But that reprieve is a short one.”
Dancing Sugar Plum Fairies and Dollar Signs
In the meantime, wildcatters, residents and ranchers of South Texas are cashing in.
When the oilmen came calling, David Martin Phillip, a former mining executive and cattle rancher in Karnes City, refused to let them drill on his ranch. Instead, he leased them his mineral rights that allowed them to drill on neighboring ranches and reach the oil beneath his property horizontally, he says.
Using royalties from that transaction, Phillip, 64, recently bought a restaurant and two local radio stations, which he plans to use to broadcast oil news.
Down the road in Three Rivers, 18-wheelers and tractor-trailers rumble through town, hauling sand or enormous engine parts to drilling pads. West of town, Texas Highway 72, once lined with acre after acre of scrub bush, today is populated with oil supply companies, RV parks and “man-camps” housing oilmen, and drilling wells alighted with gas flares stretching to the horizon.
Dockery, the real estate broker, says he sniffed out the rush in 2009 when out-of-town researchers began showing up in the local courthouse, looking up property titles. He quickly started buying land he thought would be useful to oil companies. Developers built two man-camps on one of his lots and an oil company drilled a water well for a fracking pond on another of his properties, for which he gets monthly royalties. Dockery used money from those ventures to buy a stake in four wells.
The monthly royalties — “mailbox money,” he calls it — started pouring in.
“I was this sleepy broker in this small town,” Dockery says. ”Then, all of a sudden, the world drops a bomb on us, and we explode.”
Tax revenues from the oilfields have built Three Rivers a new high school and state-of-the-art football field. Four new hotels sprouted up in town and four more are in the works.
But the army of workers and supply trucks are also taking a toll on the small town, Mayor Garcia says. Traffic accidents are now a daily occurrence.
The city’s 10-man police force is struggling to keep up with traffic calls, break-ins and an influx of prostitutes from San Antonio looking to strike up business with the new residents, he says. Another concern: oil companies tapping out the city’s water supply. “Water’s a big issue right now,” Garcia says. ”It’s as valuable as the oil.”
Water is a top concern amid all the drilling of the Eagle Ford Shale, especially in a state still weathering a historic drought, says Scott Anderson, an Austin-based senior policy adviser with the Environmental Defense Fund.
Each well uses between 3 million and 7 million gallons of water, and then workers dispose of the wastewater — known as “flowback” — in disposal wells, he says. There is a risk of contaminating drinking aquifers if the disposal wells are not made or maintained properly, Anderson says.
The Highs and Lows of Drilling
The oil wells also burn off natural gas that bubbles up during the drilling, he says. That flaring and other venting at the wells release harmful chemicals into the air, including carbon dioxide, methane and ozone.
San Antonio, located on the northern ridge of the shale, has recorded higher-than-normal ozone levels in its air since the start of the drilling, Anderson says.
“Anytime you have large amounts of flaring, it’s a good bet there’s a large amount of venting going on, too,” he says. ”Then you’re releasing methane and other potent greenhouse gasses.”
Cynthia Dupnik, 55, lives in a double-wide mobile home on 25 acres of land in Karnes County, in the heart of the drilling. Often, she and her daughter, Michelle, 34, wake up in the middle of the night with headaches, body aches and nosebleeds, she says. Since the oil companies began drilling less than a mile from her home, she says, there have also been overpowering rotten egg and chemical smells, especially at night.
She has tried to bring up the issues with the energy companies involved in the drilling, but to no avail, she says. She’s not against the drilling; she just wants the smells and headaches to stop, she says. ”There’s a right way and a wrong way to do everything they’re doing out here,” Dupnik says. ”This is not the right way.”
Already, state lawmakers have tightened rules surrounding the drilling, including more disclosure of the chemicals used in fracking and extensive new rules on well-making, says Bill Stevens, a spokesman
with the Texas Energy Alliance.
“Is it perfect? No,” Stevens says. “But the industry is doing a lot.”
The bigger question is what to do when the oil stops flowing. Once the shale is tapped, there won’t be other reservoirs to siphon — the end of the line for fossil fuels in Texas, says Berman, the geologist and shale skeptic. ”We’re drilling shale not because it’s a good idea but because we’ve exhausted all other good opportunities,” he says.
“It’s all we got left. When this is done, we’re done,” Berman added.
Unlike some of his fellow residents, Dockery says he realizes this boom will end someday and South Texas will return to the quiet life of ranching and hunting. Accordingly, he’s investing much of his money in long-term projects that will generate revenue beyond oilfields, he says, such as developing a software program that allows online property title searches.
“People are fooling themselves that this will last forever. Nothing lasts forever,” he says.
“But in the interim, it’s pretty damn good.”
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