Dec 22, 2013

Sweetwater Braces for the Coming Shale Oil Boom

A pump jack coexists with wind turbines near Sweetwater. Photo courtesy of Sweetwater Economic Development.

A pump jack coexists with wind turbines near Sweetwater. Photo courtesy of Sweetwater Economic Development.

By Alex Dropkin
For Reporting Texas and the Austin American-Statesman

Ken Becker, economic development director for the West Texas town of Sweetwater, recently went to North Dakota to get a glimpse of what an oil boom can do to a small community these days – for better and for worse.

In five years, the Bakken Shale formation has turned North Dakota into the nation’s second-biggest oil producer, behind Texas. In a state just shy of 700,000 residents, North Dakota towns have seen rising population and development, which have led to housing shortages, zoning problems and increased traffic accidents and crime.

Sweetwater, a town of 11,000 people 40 miles west of Abilene, sits above a much bigger shale formation, and its politicians, planners and residents are preparing for the oil boom they see headed their way. The town is no stranger to the oil business, but the Gulf Oil Corp. refinery there closed in 1954.

“We’re trying to learn from others’ mistakes or their successes,” said Becker, executive director of the Sweetwater Enterprise for Economic Development, the city’s development board. “You don’t want to go out and build a brand-new school because you heard your town is going to double in the next five years, and then it doesn’t.”

Sweetwater is the county seat of Nolan County, one of 10 counties atop the Cline Shale formation, a 70-by-140 mile swath of oil-saturated rock in the Permian Basin. New technologies such as hydraulic fracturing and horizontal drilling are allowing drillers to reach that oil, reviving production in the Permian. Oil production by conventional means peaked in the mid-1970s. Initial industry estimates based on exploratory drilling concluded the formation could hold as much as 30 billion additional barrels of recoverable oil — more than in the Bakken or the Eagle Ford Shale in South Texas.

Even if that estimate is generous, the Cline could still produce enough oil and gas to transform Sweet water, famous for the annual Rattlesnake Roundup, which draws more than 40,000 people each March to hunt rattlers and eat barbecued snake. The town’s biggest employer is Ludlum Measurements Inc., a maker of radiation detection equipment, with 785 workers.

Becker was among six people, including oil industry representatives from the area, who spent three days in North Dakota in early November. Watford City, one of the four stops, has been “overrun” by the Bakken boom, he said. The city has grown from 1,700 people in 2010 to more than 7,000 now. Rising enrollment forced the local school district to add a fifth class in kindergarten and first grade, and plan a second high school.

Meanwhile, Williston has effectively managed an influx of so-called man camps — temporary housing complexes for hundreds of oil workers, nearly all of them men — Becker said. The city, with 9,500 man camp rooms now, has established an approval process to assure that the camps don’t get too large. Williston’s population has doubled in the past few years, to nearly 30,000.

Though the Cline Shale has been on oil companies’ radars for years, newer drilling techniques have allowed them to profitably get at the oil. Buzz about the Cline Shale has picked up in the last year, and Sweetwater already is seeing the effects.

“We had an industrial park that we bought eight to 10 years ago and started to do some infrastructure stuff to it, just hoping someone would see it. By the end of 2012, it was 100 percent sold out, and now we’re trying to find more land to buy to make another industrial park,” Becker said.

According to Baker Hughes Inc., the Houston company that tracks drilling activity across the country, there are no active rigs in Nolan County. But the Texas Railroad Commission has approved 256 drilling permits there since the beginning of 2012.

It’s not uncommon for companies to wait to start drilling, and factors can include their operational plans and the availability of rigs, according to the Texas Oil and Gas Association.

According to Becker, around 15 new businesses have come to Sweetwater and nearby Roscoe in the past year. The city hosted an inaugural Shale Show for the industry in October.

Sweetwater already is a hub of Texas’ wind industry. Wind farms in Nolan County produce 4,686 gigawatt hours of energy annually, more than any other Texas county.

“The oil should be another order of magnitude larger, but we understand what’s going to come with it,” Mayor Greg Wortham said. “The institutions are working together a lot more, we have much more sophisticated people in each of our institutions, whether it’s economic development or the hospital district or industrial groups or the county. Everybody understands the implications and the size and the magnitude.”

“The challenge of each community is to figure out, ‘OK, we need bowling alleys and we need new Applebee’s or whatever’ so that there’s something to do other than the wild nightclub or prostitution” that can follow an influx of oil workers, Wortham said. “Knowing what other regions are seeing, we’re much more on the lookout for things and they’re sort of rooted out at the beginning.”

The surge of people and new money creates well-paying jobs and new revenue for small towns, but also can lead to housing and labor shortages, road damage and increased traffic accidents, crime and drug use.

“I’m not saying that will happen, but that can happen any time you have a lot of new money coming into a community,” said Bud Weinstein, an economist at Southern Methodist University in Dallas who has studied oil-shale development. “I would argue, on balance, that the pluses outweigh the negatives, but there are negatives, and you can’t ignore it if you’re talking about a rush of people and money into an area.”

The busts that have followed past oil booms, including in the Permian, have sometimes left behind empty shopping centers, office buildings and apartment complexes in towns atop the Permian. Overdevelopment “has not been the case so far with these shale plays,” Weinstein said. “I don’t see that around the country. I don’t see communities that had a boom and have then been abandoned. That just hasn’t happened.”

Technology has made oil and gas development far less of a gamble than in the past.

“Oil and gas drilling has become more like a manufacturing process than a wildcatting process. When you drill into a shale, and you’ve done your seismic [reports], you know you’re going to get some oil and some gas. You don’t know how much, but we don’t have dry holes anymore,” Weinstein said.

Sweetwater leaders are trying to be smart about what’s coming their way.

“There’s going to be times when it’s going to be painful, no two ways around that,” said James Beauchamp, president of the Midland Odessa Transportation Alliance, which advocates for more state road money for the Permian Basin. “But it’s going to happen regardless because there’s tremendous, tremendous money involved.”