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Pain but No Panic in Texas Oil Patch as Saudis Flood Market | Press "Enter" to skip to content

Pain but No Panic in Texas Oil Patch as Saudis Flood Market


KARNES CITY, Texas — Leaner days are back in the oil patch of South Texas.

Once-busy roads are empty except for the workers repairing the potholes from the damage done by truck traffic in the last boom. Oil producers have begun to lay off employees and call their service companies to say that they have drilled their last well for a while. One temporary-housing camp is offering free food to attract lodgers, and trailer parks are emptying.

And the collapse of oil prices to nearly $30 a barrel — roughly a 50 percent decline from the beginning of the year — is just beginning to sink in. Saudi Arabia’s decision last weekend to ramp up production, even as the global coronavirus outbreak saps demand for fuel, is driving up global supplies with no place to go but storage tanks.

But even as some itinerant workers are moving on, full-time residents of Karnes City and the surrounding county are not panicking, at least not yet. They know the ups and downs of oil cycles, and they see just another trough, whatever the role of geopolitics or a pandemic.

“Everybody knows oil is boom-and-bust, and everyone thinks it may not be today, tomorrow or next week, but eventually the price will go back up,” said Ken Roberts, the city manager. “This isn’t their first rodeo.”

When I visited Karnes County during the last downturn nearly five years ago, it was the biggest producer of oil in Texas, and there was alarm in the air as the price of crude dropped from more than $100 a barrel to under $45 within a year. Oil companies dropped drilling crews and slashed payments to local service companies. Farmers who had become millionaires from royalties from wells drilled in their fields were suddenly having trouble making loan payments on new tractors.

The local oil fields have since made a modest comeback, along with the economy that depends on them, as drilling activity has continued. But even though the county offered the most productive shale in the Eagle Ford field, the drilling frenzy here never fully returned to the peak it achieved between 2009 to 2014, even as oil prices crept higher in 2018 and 2019.

Some of the most active drillers, like Pioneer Natural Resources, sold their wells to focus on the Permian Basin in West Texas, where the break-even price on drilling wells is a few dollars lower. (The very best well around here breaks even at $38 a barrel, according to local officials, well above the current price.)

Others, like Sanchez Energy, filed for bankruptcy protection, while ConocoPhillips, Marathon Oil and EOG hung on in the prospect that oil prices would climb.

Five years ago, Brooks Holzhausen, the chief operating officer of Supreme Vacuum Services, which hauled fracking fluids and oil well wastewater, was struggling to stay in business by slashing his payroll. When I returned this week, his business was gone and he had left town.

In its place was Supreme Rental Services, which rents big tanks that hold liquids used in the oil field such as drilling mud, fracking fluids, and brine waters that come up out of the ground with oil and need to be disposed.

“We’re not going to make rash decisions,” said Ches Swann, the manager of the operation and its 22 employees. He said he was cutting his workers’ hours and bracing for demands by oil companies that he lower his service prices. But he said he would use the downturn as an opportunity for his workers to do maintenance on the tanks, replacing valves and liners, which will extend their life spans and produce savings in the years ahead.

“In the oil business it would be naïve not to expect peaks and valleys,” he said. “If you can weather the lows, you’ll be stronger, and the new competition will be hard to break in.”

At least some oil workers, especially veterans who have lived through the highs and lows, remain hopeful.

“Once we get a hold of the coronavirus scare, things will turn around,” said Jason Boss, a truck driver who hauls crude oil. He is so confident that he and his family rented a house on Wednesday and are preparing to move out of their trailer.

Mr. Boss said he felt assured because so many oil companies had reduced their exposure to fluctuating oil prices by hedging, fixing their sale prices at a time when crude prices were higher, usually for several months. “Of course, if the hedge contracts are up, and the oil price is still low, we’ll have something totally different to worry about,” he added.

His wife, Kristina, said she wasn’t overly worried, either. She recalled growing up watching her father, who worked his way up from menial jobs to work on the oil rigs, manage through booms and busts.

“I remember in 1998 we had just bought a house and owned three vehicles,” she said, recalling one of the industry’s big busts. “One day we had it all, and the next we lost it all. My dad stayed with it, reassured us, and then things went up again.”

Local officials and merchants said they were fairly sanguine, in part because the county was inoculated by the 2014-15 shock when members of the Organization of the Petroleum Exporting Countries decided to open up the production spigots to undercut American shale drillers who were flooding the market with new oil.

Since the county tax base dropped in 2014 and 2015 by 20 percent, after several years of rapid growth, it has recovered by between 5 and 10 percent, according to the county treasurer, Vi Swierc. She said the county’s share of sales taxes, which slumped by two-thirds from a high of $1 million a month when oil prices fell five years ago, have remained steady the last two or three years at $300,000 to $400,000 a month.

Karnes City, the county seat, put $6 million into emergency reserves during the go-go days, so financing for fire, police, water and sewer services for the city’s 4,000 people appears secure.

Property values around Karnes County have remained relatively high. People say land values are steady because there is so much shale soaked with oil under the ground that companies will inevitably want to drill again.

One thing that has fallen are the royalty checks local residents receive from the wells on their property as wells drilled years ago rapidly decline in production and prices swoon. In the early years of drilling, residents used their royalties to remodel their homes. Families traded in their Ford Explorers for Lincoln Navigators, according to Ms. Swierc, the county treasurer, and people bought beach cottages in nearby Rockport.

Ms. Swierc and her nine siblings shared royalties from two wells on family property, and with early gains she repainted her house, refurbished her floors, and paid for her daughter’s wedding. But those days are over, and the royalties are down to a trickle.

“I just texted my little sister to say it’s either a six-pack or a case of beer this month,” she said, of their expected payments. But she added that Karnes County would do fine. “I’m optimistic, she said. “This is the nature of the beast. Oil goes up and down.”

I revisited the local John Deere dealership to see if people who had fallen behind on their tractor payments the last time oil went down had finally met their obligations. Josh Morales, the store’s general manager, said that they had eventually, with only a few exceptions. While the store’s sales are down from the highs of 2013 and 2014, Mr. Morales said revenues were now stable.

“Nothing has changed, as of now,” he said. “That could change next week, tomorrow, or later this afternoon.”


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