Texas Swagger Fades as Oil Town Finds Itself in OPEC Squeeze

Texas Swagger Fades as Oil Town Finds Itself in OPEC Squeeze

Back in October, Jill Potts waved off concerns about falling crude prices, pointing to the long lines of trucks forming outside her oil field supply store in South Texas as evidence that the shale boom was still going strong.

But then oil kept plunging — from $82.70 a barrel back on that sunny mid-October day to $70, then $60, and ultimately touching as low as $43.58 before settling at about $50 Thursday.

Potts’s mood has changed.

Standing inside her shop in Cuero, Texas, surrounded by industry wrenches the size of T-Rex femurs, she spoke on a recent morning of seeing fewer trucks rolling through the Eagle Ford shale field and about how clients have become more price sensitive. Broken items that oil workers were quick to replace before are now being repaired in the field.

“I didn’t realize it was going to be this big of a …” Potts said, stopping mid-sentence to compose herself. “It’s much more impactful than I thought it would be.”

She and her husband, Skip, are trimming costs by cutting inventory of those high-end items — like heavier valves and flanges and lay-flat hoses — that have fallen out of favor the most with clients. The couple is focusing sales on safety and environmental clean-up, items that companies can’t skimp on amid the price plunge.

“People used to just come in and put something on the counter and say, ‘I need this,’” Potts said. “Now they’re asking what it costs and if we have a cheaper brand.”

Moving South

The Pottses ran a similar business in North Texas, helping supply natural gas drillers plumbing the Barnett shale field. Companies like Chesapeake Energy Corp. did such a good job finding gas that prices crashed. Last summer the Pottses moved south, following higher oil prices and a record number of rigs.

The same story has played out in the Eagle Ford.

EOG Resources Inc. and others mimicked the techniques of gas producers, drilling long horizontal bores through layers of shale rock more than a mile below the Earth’s surface, then blasting water, chemicals and sand into the cavity to jar loose oil that had been untouchable by traditional wells. Eagle Ford output has grown 3,000 percent in the past five years, according to the Energy Information Administration, the most of the major shale formations.

U.S. crude production jumped almost 70 percent in the past five years, adding nearly 4 million barrels a day to global supply, and the excess began to eat away at prices. West Texas Intermediate, the U.S. benchmark crude, fell from $107 a barrel in June to less than $45 last month. More than 30,000 layoffs have been announced across the industry as companies slash budgets, according to a tally by Bloomberg News.

OPEC Production

WTI added $1.21 to settle Friday at $51.69 a barrel on the New York Mercantile Exchange.

The drop accelerated when the Organization of Petroleum Exporting Countries, whose members control about 40 percent of global oil production, voted in November to maintain output in an effort to protect its market share.

Leslie Beacom knows all about OPEC, the death of Saudi Arabia’s king and political unrest in Yemen. Her company recently held a summit to help employees understand the different factors playing a part in global oil prices.

Avalon Management Group isn’t an oil company, though. It manages hotels, including an Americas Best Value Inn in Cuero, a town of less than 10,000, located about halfway between San Antonio and the Gulf of Mexico. The hotel was was constantly full last year, as was the Best Western on the other side of town, so they were losing potential customers to lodging in towns more than an hour away, Beacom said.

Rock Business

So Avalon built a Holiday Inn Express next door, to bring in some of that business. It opened last month, just as the number of drilling rigs — and rig crews — in the Eagle Ford fell to the lowest level since 2011.

The rock business isn’t going great either.

Joe Adams Jr., who was born in Cuero, had opened a new line at his O&G Rocks company focused on selling crushed rock to help stabilize drilling sites when the industry started booming seven years ago. Since the crash, those sales have fallen at least 50 percent, he said.

Cuero’s economy has long been based on two volatile commodities — cattle and oil — Adams said, so families there know not to overextend themselves when times are bad.

“The industry is holding its breath and waiting to see where prices go,” Avalon’s Beacom said. “They’re not opening any new rigs right now. If oil gets back to $70, things will be zooming again.”

SOURCE:  BloombergBusiness

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