Monday, August 26, 2013

Marfa Wildcat Story

This morning I came across a good, fun read.  Jennifer Hiller (@Jennifer_Hiller), a reporter covering the Eagle Ford for the San Antonio Express-News spent a few days hanging with wildcatters way out in the sticks of far west Texas and writes about her experience here.  Woven into her story are tidbits of oil and gas law, oil and gas finance, logistics, and other nifty factoids.  It's a long article, but if you give it a chance you'll probably do like I did and get a quarter of the way through it and commit to reading to the end to see if they hit pay-dirt.  I wouldn't dare spoil it for you.

Happy Monday :)

Thursday, August 22, 2013

New Friends: ClineShaleSite.com

Ok, big news: I've decided to share some of my writing with friends at ClineShaleSite.com

After talking with them and learning that we share a common excitement and long-term bullishness for the Cline, the decision to contribute to their site was an easy one.  You can click over and see my first post for them here; or, since it is slightly abbreviated there, I'll post the unabbreviated version below.



Barnhart is a small unincorporated town with a population less than 200 that sits about an hour’s drive south-west of San Angelo.  However, this is not your typical, sleepy, rural Texas town.  Every day the town’s streets swell with traffic as workers from other communities converge on Barnhart to make use of the South Orient Railroad, which connects the Permian Basin to Houston.  Sand and other oilfield materials go in to Barnhart; oil goes out to Houston.  With the development of the nearby Cline and Wolfcamp formations, this tiny town has become a very valuable outpost.

However, Barnhart has also become the source of much controversy since it was reported back in June that the town’s lone water well had run dry.  Since then, several publications (The Guardian, The Houston Chronicle, and The Daily Kos) have opined that fracking has consumed all of the town’s water leaving the residents and livestock there thirsty.

Currently, Texas is in its 3rd year of a drought that began in 2011, a year which has been labeled one of (if not) the worst year(s) for rainfall in recorded history for the state.  The last two years have been a poor reprieve from that time.  Today, Texas lake water levels average 66% of capacity, and groundwater depletion is a growing concern.

Is fracking to blame for the Barnhart well running dry?  To answer this in the affirmative, like the above mentioned publications, is to give in to pure speculation and ignore the myriad of factors that weigh on this issue.  It’s easy to blame and demagogue the highly visible semi-trucks hauling tank-full after tank-full of water.  It’s more difficult to point the finger at the ranchers and farmers who often account for 3 to 20 times the water used for fracking in the communities around oil rich formations.  The author of the Guardian article points out that in nearby Crocket County fracking consumes 25% of all water used, but she fails to note that there are less than 3700 people living in that mostly infertile area.  All of the authors seem intent on fear mongering by pointing to Barnhart as evidence that the oil industry is going to run our entire country out of water, but in Texas - the number one state for oil and gas production by far – fracking has never accounted for more than 1% of annual statewide water use.

The real issue to be highlighted in Barnhart is the necessity for smart leadership and coordinated efforts among parties with an interest in maintaining the value of a common resource – that resource being the town, its people, infrastructure, and also its groundwater.  It would behoove the people of Barnhart to incorporate their town, elect leaders, extract tax revenue, and begin the coordinated dance with the oil companies that other Texas municipalities have learned to embrace.    

Today Barnhart is not without water.  Five days after the well went dry local crews were able to bring an old railway water well back into production to meet the community’s needs, but it’s just a temporary fix to their water issue.  In the long-term nothing short of breaking out of this awful Texas drought will sustain the efforts in the Permian.  My suggestion to those concerned is to do as the salty old Texans who have survived through thick and thin do – pray for rain.

Thursday, August 8, 2013

Cline Shale Area Tax Revenues for June

Over the last few months I've noticed that Abilene Reporter-News (ARN) has done a good job of reporting on the sales tax revenues from some of the municipalities in the area of the Cline Shale.  But those familiar with the area should notice they don't report on ALL of the cities in and around the Cline.  Most notably they leave out Midland, San Angelo, and Roscoe (and maybe Lubbock is worth mentioning too).  With a population of about 1300, it's no major offense that Roscoe wasn't included in their report, but it does seem odd that ARN decides to include much smaller towns like Robert Lee, Roby, and Mertzon.  The latter two towns are smaller than Roscoe by half.  Curious.

Anyway, I'm going to take what ARN reports and include the approximate populations of the towns to give a better frame of reference.  My conclusion about this data is below - but I'll save you the time - this data shows nothing really significant.

Increase/Decrease in Year-Over-Year Sales Tax Revenue

Abilene (pop. 118,100) - up 0.78%

Big Lake (pop. 3,000) - down 4.13%

Big Spring (pop. 27,400) - up 3.70%

Colorado City (pop. 4,200) - up 18.78%

Mertzon (pop. 800) - up 84.27%

Robert Lee (pop. 1,100) - up 11.73%

Roby (pop. 700) - down 6.5%

Snyder (pop. 11,200) - down 1.01%

Sterling City (pop. 900) - up 9.73%

Sweetwater (pop. 11,000) - up 8.55%

My conclusion about these numbers is similar to that of the previous month's report, which I blogged about two posts ago.  This is a mixed bag of data, and it is obviously too soon in the development of this formation to see major effects of drilling operations.  Sure, Mertzon's 84% increase is likely due to drilling activity, but how much activity do you think it takes to move its' needle?  Less than a thousand people live there.  If by chance a tour bus stops in Mertzon for lunch one month, that could result in an 84% increase in sales tax.  I kid.  But seriously, one thing to keep in mind when reading these numbers is that Texas in general has a strong economy and there are many factors at play on the economics of these municipalities, not just the oil industry.

Here is the original ARN article this data was taken from.

And if your interested, here is ARN's article on May's sales tax receipt data, and here is the one for April.

I see a spreadsheet and some data-tinkering in my future.



Wednesday, August 7, 2013

Devon to reduce Cline rig activity

According to the Tyner Land Solutions twitter account Devon Energy, the largest operator in the Cline, revealed in their conference call that they are less than pleased with their well data results and are taking steps to reduce their presence in the Cline.  It sounds like they have had some success, but also some costly failures and they're going to trim operations to go with what works.




Devon's report dove-tails off what I said at the end of my blog post yesterday.  We are seeing increased drilling permits issued, and some increased tax revenues in cities around the Cline, but what ultimately matters is whether Cline wells deliver the oil that analyst claim is there.  Hopefully in the grand scheme of things today's news will only represent a "one step back" in Cline development, and we'll see "two steps forward" soon.



Tuesday, August 6, 2013

Slump-buster, Abilene, Timing

Ok, it seems like forever since I've written a blog post.  Unfortunately, this whole summer I've been full of ideas to write about but short on time and focus because of summer school and work.  I just finished my last law school exam though, so hopefully these next few months will see more prolific blogging from me.  Because this is my first time to add to this blog in a while, I'm not real optimistic about it's content. Nonetheless, I need a slump-buster.  So here's what I have:

As I mentioned, I'm in law school right now, and that actually has some connection to what I want to write about today - timing.  I began law school in the fall of 2010.  Typically law school lasts three school-years (6 semesters).  So, if you do the math (2010 + 3 =2013), you should come to the conclusion that my pace in school is a little off, and that I should have graduated this May.  I can hear you're thoughts, reader.  "Have you been taking you're time, Matt?  Slacking off?"  Well, the answer to your inquisition, dear reader, is no.  I have not been slacking off.  I was given the opportunity to get two graduate degrees while at Texas Tech, a JD and an MBA, and I decided "why not?"  Two is better than one, right?  Well, the answer to that rhetorical question is "not necessarily," especially if time is of the essence.  The added classwork of the MBA is going to keep me in school an extra semester, which will delay graduation, taking the bar exam, and finding a job by about 6 months.  I'll take the Texas bar exam next February and get the results in May 2014. 

I haven't always been keen on graduating a semester late, but lately I've been of the opinion that it's not such a bad thing.  Why?  Because I'd like to land a high paying oil and gas related job.  But, like most people who want to live and work in west Texas, I don't want to move to the desert: Midland.  I'd prefer Abilene.  In Abilene the cost of living is much cheaper, the city is surrounded by picturesque ranches, and its not too far away from major cities: Dallas and Austin.  However, Abilene doesn't have much of an oil industry right now.  In fact, the few people I've asked have said there aren't but a few oil and gas lawyers in Abilene - maybe not even ten.  But that could be changing fast.  Some analysts have predicted that the activity from the Cline Shale should really heat up in the third quarter of this year, and because of the capacity issues in Midland due to the multiple producing formations in the Permian Basin, Abilene should receive a substantial amount of the Cline's economic activity.

So far the tax revenues in Abilene tend to support this theory.  The taxes collected in Abilene from sales in the month of April this year showed an increase of 7.88 percent over the April 2012 sales figure.  And the May total came in at 9.26 percent above the previous year.  Now this increase in economic activity is almost certainly not directly due to Cline Shale exploration - the Cline Shale formation doesn't even reach as far west as Taylor County where Abilene sits.  Plus we're still really early in the development of this formation; it's only been about a year since the blogs started to run with the story of this exciting new play.  Rather, the increased activity in Abilene is probably due to infrastructure spending by companies, and maybe the City of Abilene, getting ready for what's coming.  Devon Energy, the largest holder of interest in the Cline has built a field office in Abilene.  It wouldn't surprise me if the other big players like Apache Corporation and Laredo Petroleum were in the process of doing the same.  The movements of these giants can spur smaller companies to follow suit and the net effect this pre-production cold-war can have on the economics of a mid-sized rural city like Abilene can be quite substantial.   

Other cities in and around the Cline Shale showed mixed data.  The city of Sweetwater, which sits at a very strategic location in relation to the Cline showed a slight decline in year over year sales tax receipts for the month of May, while Coleman and Anson, two small towns outside the formation, both showed over a 17% increase.  These towns are significantly smaller than Abilene, though; and in my opinion their size makes them poor economic barometers.  Heck, Sterling City showed a 127% increase in year over year sales tax revenues collected in April, but that city (village rather) has less than a 1000 residents.  Whoopty do. 

Let me conclude this post by saying anything could happen between now and next May.  I've seen some Cline-followers on twitter reporting on the amount of drilling permits issued to the big operators in the area.  That's exciting stuff, but drilling permits don't equal oil in a pipeline headed to market.  At least not yet while we're still in the speculative stage of the game.  Time will tell if this is really the biggest inland discovery of oil in the lower 48, and for now that's ok with me.  Time is a resource I have a little bit too much of right now.  Here's hoping the next 9 months produce some real gushers and a chance of a decent job for this debt-laden future-lawyer.