Coast beware, a potential bust is taking root in the south Texas oil patch

• Most of the Texas vacation home market will follow oil prices this summer 2016
• Vacation home markets are a discretionary purchase, but the best in class will do ok. 

Collier owns a small pipe business based out of Concan and a ranch in Zavala County, it’s starting to look a lot like 1984, when the last great Texas oil boom shuddered to an end.

• “Anybody who played in this game and didn’t take care of their finances really well? They’re gone,” Collier said.
• “You’re looking at living out of your back pocket for three years. There are people out there who are broke and just don’t know it yet.”

The drumbeat of low crude oil prices has taken hold in the oil and gas industry, from Collier’s South Texas business to Wall Street.

Companies are slashing capital budgets by the billions. Investment research firm Morningstar expects the downturn to last all of 2016, and said last week that near-term prices could be “ugly.”

• “It’s just the cycle of things,” said oil and gas attorney David Roth of Elder Bray. “It was bound to arrive.”
• The army of roughnecks, RVs and heavy trucks that washed across South Texas a few years ago is in retreat, battered by crude oil prices that have tumbled from above $100 to below $40.
• Alongside oil, other things are crashing too — the number of working drilling rigs, the “hiring” signs tacked up on the bulletin boards at South Texas restaurants, the number of people calling Collier, who has been in the pipe business for 40 years.

There were 840 active rigs in Texas last January, a number cut to 321 now. In the Eagle Ford Shale, the field that arcs across South Texas in a half smile, the number of active rigs has tumbled from 200 to 76.

Idle rigs are stacked, folded up like umbrellas, in a field east of San Antonio.

“Something was going to cause the Eagle Ford to go bust,”

“One thing could have been a better shale formation somewhere with better economics. Someone could have discovered a shale in Michigan with better returns.”

• Instead, it was a combination of timing and prices. By late 2014, the Eagle Ford was already maturing as a field, with companies zeroing in on the best spots and moving away from the edges of the field. Then oil prices crashed.
• Roth was struck by the view when he flew over the field a few weeks ago. “There’s plenty of activity, but nothing like the last five to six years,” he said.
• Expect more layoffs, layered on top of the layoffs that have already happened.

Texas Jobs disappear

America is getting low gas prices, but Texas workers and the Texas economy is going to pay for it

• many think the Texas economy will not fare well.
• We’re not going out to the mall and out to the movies
• We’re not buying all of those big trucks
• It ripples on and on

Bankruptcies, legal disputes

Attorney Marty Truss of Dykema Cox Smith said bankruptcy filings are on the uptick.

• “That’s new, and it’s something that’s been anticipated for many months,” Truss said.
• Law firm Haynes and Boone LLP on Dec. 4 released its “Oil Patch Bankruptcy Monitor,” which tracked 37 North American oil and gas bankruptcies in 2015, including 17 in Texas.
• By mid-December, Irving-based Magnum Hunter, which operates on the far eastern edge of the Eagle Ford, had also filed for bankruptcy protection, saying it had $6.4 million in cash and $1.1 billion in total liabilities at the end of the third quarter.

It’s a time for condensing, consolidation, and frankly, survival of the fittest, There are folks who will not make it.

Legal disputes over royalty payments are on the increase in South Texas, with more mineral owners requesting audits to make sure they’ve been paid correctly.

“As the checks get smaller, people look at them a lot closer,” “This is exactly what happened in the 1980s. The longer equipment doesn’t run, the more likely it will be used as spares or junked,”

But when oil prices turn around, the surviving service companies with good equipment will have a lock on the market. “This is also what happened in the 1980’s,” Gilmer said. “Fortunes are built in the busts.”

• the same will apply to Texas coast undeveloped property, the best time to buy is in the bust

We’ll see just how much the vacation market on the coast correlates to the price of oil this summer!

jhiller@express-news.net