What the Oil Downturn Means for South Texas

Eagle Ford Shale Production

The Eagle Ford Shale runs across a large swath of counties in South Texas, stretching in a check-mark shape from just north of Laredo in the west to just north of Houston in the east. The most active counties for production along the Eagle Ford are McCullen, Maverick, Dimmit, La Salle, Karnes, Live Oak, and Atascosa counties, primarily rural counties with rich histories in ranching and agriculture. Eagle Ford energy reserves were first targeted as a drilling area by 2002, but production in the area didn’t really ramp up until 2009, when companies began exploring fracking techniques to extract hard-to-reach oil. Companies flocked to the area to stake their claim, beginning a furious cycle of drilling. In 2009, there were fewer than 50 active rigs in the area, but by 2012, there were over 275 productive wells. Production steadily increased from 2012 to 2014, when OPEC’s decision to inundate the oil supply devastated the price per barrel.

Most rigs across the Eagle Ford Shale now sit unproductive due to the drastic drop off in oil prices.
Most rigs across the Eagle Ford Shale now sit unproductive due to the drastic drop off in oil prices.

Boom Towns Turned Ghost Towns

Towns like Cotulla, which sits about 90 miles southwest of San Antonio, flourished during the boom years. There weren’t enough beds to sleep the thousands of oil workers who flocked to the area, so the town hastily quintupled its number of hotels, adding 16 new lodgings to its modest count of 4. As hotel revenues soared, so did sales tax collections, helping the sleepy town pay off its debts. And Cotulla wasn’t the only place where this happened, towns all across the Eagle Ford region boomed. Then out of nowhere, all the buzz stopped as oil prices plunged in late 2014. Now thousands of workers have been laid off, and there is no longer a need for all the recently constructed hotels. In Cotulla and other towns, hotels sit empty as local populations have returned to their pre-boom numbers. As production dried up, so did the inflated economies of these tiny Texas towns. The town of Pearsall reported a 30% drop in sales tax revenue as oil field workers fled to San Antonio in pursuit of other jobs. Residents of these tiny towns are hopeful that the boom will one-day return, but as rig counts continue to drop, it seems like that day may be in the very distant future.

Small towns, like Cotulla, TX, were overrun by oil and gas workers during the heyday of Eagle Ford. Today, these towns have returned to their usual slow pace. Photo credit Cotulla Chamber.
Small towns, like Cotulla, TX, were overrun by oil and gas workers during the heyday of Eagle Ford. Today, these towns have returned to their usual slow pace. Photo credit Cotulla Chamber.

San Antonio Remains Resilient

Though the small towns of the Eagle Ford oil boom, may be suffering, it seems that the area’s largest metropolitan area is doing just fine. Just north of Eagle Ford lies Bexar County, home to San Antonio, where many oil & gas companies staked out headquarters to manage their interests in Eagle Ford production. Here, despite some of the local oil and gas companies going belly up, the overall economy remains strong. San Antonio’s well diversified economy enabled the city’s job market to continue growing even with the loss of oil and gas jobs. The bustling city even had the 6th lowest unemployment rate in the state; a sign that it’s not too reliant on oil and gas cycles. Local business like Apple Moving, movers in San Antonio, say that they haven’t seen any noticeable effects of the oil downturn. For them, business has been busy as usual, particularly in July and August as families try to settle in before the school year starts. Overall, they say it seems that more people are moving to the Alamo City for new job opportunities than are leaving. Housing data corroborates their assertions. While the housing market here hit a low in 2012, it has steadily risen ever since despite slashed oil prices. In 2012, median home prices in the San Antonio metropolitan area hovered at around $132,000; today that median is well over the $200,000 mark.

Despite Oil, Texas Economy Remains Strong

Texas as a whole has remained remarkably resilient in the face of the oil crisis. Though thousands of people in the energy sector have endured lay-offs, the state’s flourishing hospitality, education, health, tech, and financial sectors helped create enough jobs to keep the economy stable. In fact, the energy sector only accounts for 2% of state’s entire job market and 10% of its GDP. Evidence shows that the lost jobs may have contributed in a drop off in the state’s sales tax collection, but the state GDP still managed to rise 3.8% in 2015. Legislators also ensured that the state’s budget remained padded, with a surplus of about $10 billion sitting in its coffers. Overall, Texas is fairing this oil and gas glut far better than it did when oil busted in the 1980s.

For those relying on an uptick in oil production in Eagle Ford and other areas of Texas, there is a glimmer of hope. In the last month, prices have eeked up to over $40/barrel – far from the $100+/barrel during the boom, but more promising than the $26.68/barrel in January of this year.

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