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Fiscal Notes

 

Fiscal Notes

A Review of the Texas Economy from the Office of Susan Combs, Texas Comptroller of Public Accounts

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Boom in the Shale

Big energy find worth billions

The Eagle
Ford Shale is
roughly
50 miles wide
and 400 miles
long, spanning
23 Texas
counties.

By Clint Shields

The glory days of the Texas oil patch — of boomtowns and gushers, of fortunes made or lost in a day — are as much a part of our state’s story as cattle and cowboys. But after decades of “maturing” oilfields and declining production, it also seemed like a chapter from the distant past.

The low-end projection is 3 billion barrels of oil and condensate.  But the high side is as much as 10 billion barrels.

— Thomas Tunstall, director of the Center for Community and Business Research

Until recently, that is.

In the past few years, a new and unexpected oil boom has been developing in South and East Texas, driven by production in a rock formation called the Eagle Ford Shale.

Roughly 50 miles wide and 400 miles long, the Eagle Ford is named after an old West Dallas community where the shale rock was first studied, exposed at the surface. From there, the rock layer dips thousands of feet into the Earth where, hundreds of miles to the south and east, it has become an economic boon.

How big, and how much?

A 2012 study by the University of Texas-San Antonio (UTSA), Economic Impact of the Eagle Ford Shale, assesses the economic and job growth it has produced as well as its long-term potential.

According to the UTSA study, 2011 energy production from the shale accounted for $25 billion in economic activity in 20 southern Texas counties, supporting nearly 47,100 jobs and generating about $615 million in state and local tax revenues. By 2021, Eagle Ford Shale energy production is expected to support nearly 117,000 jobs in the 20-county region, with an annual economic impact of about $42 billion and state and local tax revenues of nearly $2.9 billion.

As with most oil and natural gas fields, it’s probably impossible to predict just how much oil is locked within the shale.

“We’re still trying to figure that out,” says Thomas Tunstall, director of the Center for Community and Business Research at UT-San Antonio’s Institute for Economic Development. “The low-end projection is 3 billion barrels of oil and condensate, but the high side is as much as 10 billion.”

Thomas Tunstall
Director of the Center for Community and Business Research at UT-San Antonio’s Institute for Economic Development

Wells Permitted and Completed in the Eagle Ford Shale Play, March 2012

There are 954 oil and 570 gas wells that are on schedule spread across the 24 counties that make up the Eagle Ford Shale Play.

Note: There are
3,649 permitted
locations representing
pending oil or gas wells for
which either the operator has
not yet filed completion
paperwork with the commission, or the completed well has not yet been set up with a commission identification number.

Source: Texas Railroad
Commission

Oil and oil condensate are close cousins to one another. Condensate has a slightly lower energy content, but is lighter than crude and produces a higher percentage of gasoline and diesel when refined. Both are valuable to producers.

UTSA’s high-side estimate, Tunstall says, has economists and energy producers enthused.

Energy production from the shale accounted for $25 billion in economic impact in a 20-county region supporting nearly 47,100 jobs in 2011.

“To date, the largest oil discovery in the lower 48 states was the East Texas oilfield, at about 7 billion barrels,” he says. “Based on the range of estimates, Eagle Ford could come close to that, if not exceed it. And really, that’s kind of mind-boggling because I, along with others, thought that Texas was played out in terms of big oil finds.”

But it wasn’t. In a gamble on the untapped shale formation, Petrohawk Energy Corporation drilled the first well in its Hawkville Field in LaSalle County in 2008. The Petrohawk discovery, at 10,000 to 12,000 feet below the surface, paved the way for other explorers in the shale. Horizontal drilling and hydraulic fracturing, established drilling techniques not often used in combination, helped get to the oil and natural gas in the shale.

Mike Yeager
Chief Executive Officer, BHP Billiton Petroleum

The shale is unusual in its abundance of liquids — more so than in other U.S. shale plays. The Eagle Ford Shale does produce natural gas, but Petrohawk made its initial discovery in an oil-bearing “sweet spot.” Petrohawk, which was subsequently acquired by BHP Billiton Petroleum, has 14 drilling rigs in the field, and plans to increase its presence to more than 25 rigs by the end of 2013. BHP Billiton officials believe the Eagle Ford Shale play will pay dividends for years to come.

“The technology we’re deploying to unlock this tremendous resource over the next 10 to 20 years will bring a great benefit to Texas, to America and ultimately to the world,” says J. Michael Yeager, BHP Billiton Petroleum’s chief executive officer. “It is the highest-value shale in the United States.”

Since that initial discovery, activity in the Eagle Ford Shale has skyrocketed. In 2009, the formation had 40 producing oil leases and 67 producing natural gas leases; by 2011, those totals had risen to 368 and 550, respectively. The volume of drilling permits issued in 2011 was more than 180 percent higher than 2010 totals.

ON THE RISE — OIL, NATURAL GAS AND RIGS

Since the Petrohawk discovery in 2008, the pace of drilling in the Eagle Ford Shale has risen dramatically.

There are 954 oil and 570 gas wells that are on schedule spread across the 23 counties that make up the Eagle Ford Shale Play.

Source: Texas Railroad Commission

View Data Table

Rural Buzz

“It looks to us
like this is the
real deal and should have at least a 10- to 20-year lifespan, and perhaps much longer,”
Tunstall says.
“And as the energy
companies get better
with technology,
their success rate
goes up.”

The increase in drilling activity means times are good for energy companies — and for the counties that overlay the shale production zone.

“Life has changed around here,” says James Teal, county judge in McMullen County. “Traffic, especially commercial vehicle traffic, has exploded. There are new businesses, temporary housing for oil field workers… it’s all popped up since drilling activity started in 2009. There hadn’t been drilling activity in McMullen County prior to that.”

And new businesses, of course, mean more jobs.

“Anyone who will work can work right now,” Teal says. “Cashiers, cooks, even sheriff’s deputies — we’ve lost some of those to jobs in the oil field.”

Support industries benefit as well, including pipe companies, storage tank suppliers, truckers and others.

Wendall Wood, co-owner of Woods Trucking, took some of his Fort Worth-based truck inventory south to where the jobs are.

“There’s a lot of opportunity down here right now and that’s why we’re here,” Wood says. “It’s like running a restaurant or anything else — if you have the means, you find the opportunity and then meet the demand.”

Wood’s company has prior experience hauling materials in the Barnett Shale of North Texas, as well as in West Texas and Oklahoma. His decision to hire local drivers in the Eagle Ford area provides local jobs as well as easing logistics with his trucks far from home.

“It makes sense for us because it’s easier than finding them a place to stay, and it also pays because they have local knowledge of the area,” he says.

Still, the flood of workers in the area generally fills hotels along with just about every rentable space, with many returning to their permanent homes on weekends. Teal feels it’s only a matter of time before some housing starts show up.

“There’s nothing really for sale here right now, but we have folks ask every day ‘Is there a place we can buy and build a house?’” he says. “I foresee that coming in the future, it just hasn’t happened yet.”

Developers may be reluctant to invest in the area right now, Tunstall says, given some uncertainty about the long-term future of Eagle Ford’s oil and natural gas supply. But for now, the future looks good.

“It looks to us like this is the real deal and should have at least a 10- to 20-year lifespan, and perhaps much longer,” Tunstall says. “And as the energy companies get better with technology, their success rate goes up. The nice thing about Eagle Ford is that they know the depth of the shale and where it is. They’re not drilling many dry holes.” FN


On The Rise — Oil, Natural Gas and Rigs
YearProducing
Oil Leases
Oil Production
(in barrels)
Producing Natural
Gas Wells
Natural Gas Production
(in billion cubic feet)
200940308,1396719
2010724,372,792158108
201136821,808,429550221

Source: Railroad Commission of Texas

See updates on drilling activity in the Eagle Ford Shale

Published May 15, 2012.


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