I got an email from a lady wanting to know my opinion on, amongst other things, business opportunities in the communities around the Cline. I thought since I haven't really written on that topic, why not just turn my response into a blog post. So here is her original email to me, and my response:
Hi Matt,
I'm trying to find some info on shale expectations around San Angelo, Sterling City, Colorado City, etc. What resources could you point me to around drilling expectations, etc. My husband and I are exploring housing opportunities in these areas (building camps, RV parks, etc), so if you have any info/resources on housing for these areas, that would be much appreciated.
As someone with a closer eye on all this, where do you see the immediate business opportunities for an area that is just taking off? Are you seeing clear analysis done on what was done right and wrong with eagle ford?
Thanks|Anita
Anita,
Sorry it's taken me a while to get to your email. I hope the
quality of this response merits the delay. I'm going to try to address
all of the questions and issues you raised, but probably not in any particular
order, and I'll also inject a few of my own. Also, I want to preface
everything I say here with this disclaimer: take what I say for a grain of
salt. Right now I am just a graduate student, by no means a business or
oil and gas expert. I live in Lubbock, which is about 100 miles to the north
of the Cline formation and Permian Basin so I get very little information from
sources other than Abilene and Lubbock's newspaper. I'm not exactly in
the know. I can count on my fingers the number of serious conversations I've
had where the Cline has come up. In sum, what follows is just the opinion
of a hobbyist.
On the subject of running an RV park or other housing
businesses...
Are you aware that an RV park may be subject to some state
regulations? The Texas Commission on Environmental Quality just put out
this handy document to help people like yourself
understand the regs and whether or not they apply to you. Also, on the
subject of real estate data see paragraph #6.
Where do I see the immediate business opportunities in an area
soon to take off from oil development? Honestly, I lie awake at night and
wonder this myself. The following 6 paragraphs are my conclusions and
advice on this subject. It’s definitely more than you wanted to know, but I thought I’d offer it anyway. My short answer to this question is any business that was good in regular times should be great when an oil boom hits. Lost in paragraph #4 is my favorite business idea. My long answer to this question is...well just read.
1. First, I think you have to check yourself and make sure your
mindset isn't entirely "How can I move into this bustling town and get
rich?" That mentality will get you into trouble. I think business, especially
a start-up, has to be about more than making money. By that I mean you
need to find some sort of enjoyment from the business in addition to the
profits. Maybe you just like helping people and that's your source of
enjoyment, or maybe you have close friends or family in the town that you're looking
to move into, or maybe the business lets you do certain activities that you
enjoy doing. There are a million reasons to start a business. Making money
can't be the only reason. If it is, it will never be enough. So let
your "likes" inform your choice of business, not just the money.
The great thing about an oil town that will be economically hot for
several years is that it almost doesn't matter what kind of business you're in. If you operate efficiently and treat people right, you’ll do well.
2. Also, in addition to letting your "likes" inform
your choice of business, consider your skills and expertise as well. I am
almost certain that early in the development of a field like the Cline, the most lucrative business is buying and selling mineral
interests. For the right person, there are minimal overhead costs and
the margins are astronomical - like 100-500%. But, you have to have a certain
expertise to be able to do that - in this case real estate law - or else you
could get in big trouble. It's extremely risky to start a business that
you aren't already familiar with, so you should start with something you know.
And maybe that means you have to wait for the town’s economy to heat up
before starting the type of business that's right for you.
3. I think the best way to go about starting a business from
scratch in one of these boom towns is to move there first and get a job working
for someone else for 6 months to a year. That way you can talk to people,
network, and experience first hand what the current and future needs of the
town are so that you can make a better choice of business. It may cost
you a little bit of time, but it may be the difference between starting a
business that does so-so for a while, and one that takes off immediately and becomes
hugely successful. Also, when the drilling gets going real hot and heavy there are some
terrific jobs around. I'm sure you've heard of the McDonald's in Midland
that pays $15/hour and gives a signing bonus of $500. Now I'm not sure
I'd want to work at McDonald's, but you can imagine what someone with some
skills is able to earn if unskilled labor is commanding that much pay.
4. Remember, your business doesn't have to have a direct
connection to oil and gas to be extremely successful. Apparently in
Midland making burgers is a great business to be in. A rising tide lifts
all boats – you just need to make sure you have a good seaworthy boat.
Also, consider a business that makes a good or service that may have oil
field application, but which is also needed by other industries; for instance:
an accounting service or office/house cleaning service. One of the ideas
I've been playing with for the last week (and this ties into my next point
below) is to buy a coin machine laundromat. Everybody has to wash clothes
no matter what industry they work in. The laundromat could be open to
"walk in" patrons but you could also market a "pick up and
delivery wash and fold" service to all the oil field workers. My
intuition is that those men would be glad to pay some of their exorbitant
salary to not have to worry about that chore during their time off.
5. Consider buying a business. You'll need the council of
someone with technical expertise in buying businesses (because there are
several methods to value a business) and it could be very expensive, but buying
a business is an excellent idea. It lets you shop around and gives you
options. You can still be creative and entrepreneurial and change the
nature of the business once you buy it, but this is a way of cutting out all
the ambiguity that someone who starts from scratch has to face. Also, you
can take advantage of the previous owners expertise and add value where you see
fit.
6. The point I want to make here ties into what I was
saying in #3. You can't just start a business willy-nilly without an
understanding of the location and industry you'll be competing in. You
need some information, preferably hard data, about the commercial activity
of the area you plan to operate in. To that end, there are special
offices funded by Texas Tech University that can give you data and even council
you on starting a business. Check these guys out: http://www.ttusbdc.org/abilene/ They
have several locations. I used to have a friend that worked in the
Abilene office. My understand from conversations with him is that the staff there can bring you all kinds of useful statistics like population growth,
density, real estate sales data, etc. I've never used them, but my friend
was real high on the services they provide. And guess what, its all
free!!
Also, another good free source of real estate information is the
central appraisal district for whatever county you're looking in. I use
LCAD (Lubbock Central Appraisal District) all the time for my work. I'm sure
with google you can find the same information in other counties.
Am I seeing clear analysis on what was done right and wrong on
the Eagle Ford?
1. I'm not sure what you were going for on this question;
whether you are asking what private businesses have done right or wrong, or
what state agencies have done right or wrong? I guess my answer is simple
though: not really. I don't know much about the Eagle Ford. I
haven't been to that part of Texas since the shale drilling took off down
there. I have sat in a seminar where state regulators talked vaguely
about some of the lessons they learned; for instance: there isn't enough
funding to maintain roads so they try to make the oil companies pay for their
upkeep, and that towns shouldn't disallow man-camps from being in their
townships because then they can't police the men there very well. Little
anecdotes like that, but no real analysis.
On the subject of drilling expectations...
I
know next to nothing about this. With a
google search I could probably tell you how many wells Devon, Apache, and
Laredo (the three biggest players in the region) plan on completing this year,
but I’m not exactly sure what that means for the economics of the region. Also, I don’t know how many other drillers
there are and what their schedules look like.
I basically just rely on regular news media for this kind of info. The
Tech Small Business Development center linked to in paragraph 6 might have
better info on drilling than regular news, but I kind of doubt it.
Well,
actually you could go to the Texas Railroad Commission website and see their
reports on drilling permits issued and wells completed. It may be worth it to track the month-to-month
trends, but you’re still wandering into uncharted waters there. The best thing is to find an industry analyst
that publishes a report. These are rare,
but they're out there and google will lead you to them. Another good way to stumble upon them is to
follow as many Cline-interest accounts on twitter as you can. Here are some of my favorites: @eaglefordshaleP, @eaglelandinc, @tynerland, @theclineshale, @drillinginfo, @pv_energy
Thanks for the inquiry, Anita. Feel free to send more questions or info any time.
-Matt
