Energy consortium: Oil will remain low, pain continues

Rye Druzin By Rye Druzin

April 3, 2016 at midnight
Updated April 4, 2016 at 6 a.m.

Patrick J. Kennedy

Patrick J. Kennedy   Contributed Photo for The Victoria Advocate

KENEDY - Driving into Karnes County, it is easy to see the empty hotel parking lots, new buildings with few cars in front of them and abandoned housing developments.

Some have described the area as a "hot spot" for drilling and production activities. But at the quarterly regional meeting of the Eagle Ford Consortium in Kenedy, local government leaders, economists and oil companies discussed the crippling downturn that is cutting across the industry and local revenues.

"You would think the vultures are circling, thinking you're going to die on the vine," said a defiant Cotulla City Manager Larry Dovalina. "If you didn't die on the vine in 2008, you're certainly not going to die on the vine today."

The March 30 meeting came as prices for West Texas Intermediate, the American crude oil benchmark, sat around $40 a barrel. Only two days later, the prices would sink below $37 a barrel.

Oil prices have plunged since peaking above $110 a barrel in June 2014 as global oversupply has weighed down the market.

"We knew that someday the increase on the price of oil and the constant economic impact would have to have some challenges along the way, and we've been trying since day one to prepare our communities for that day," said Leodoro Martinez Jr., president of the Eagle Ford Consortium.

Continuing oil overproduction is what Immanuel Tan, a vice president with Goldman Sachs, said will keep oil prices between $25 and $45 through 2016. His price prediction was met with an audible groan from the audience.

"The fact that production has been very resilient, the fact that other oil producers around the world do continue to produce at a relatively high level and the fact that storage remains at an all-time high - We do think we will continue to be in an environment where oil prices will remain low for the balance of the year," he said.

Words like those are what Pat Kennedy, Cuero Economic Development Corporation executive director, wanted to process so he could "keep our hand on the pulse" of the current situation.

He does not believe Cuero, which has seen a nearly 31 percent fall in sales tax figures and a halving of the hotel/motel tax, has been hit as hard as other entities, like Kenedy and Karnes City.

"We didn't have some of the problems that (others) had on the way going up in terms of water issues, building permit issues and that type of thing," Kennedy said. "Subsequently, on the backside, we don't have the same kind of concerns. I do believe that. the market will take care of itself."

Tan said the market is looking at West Texas' Permian Basin as the most stable play in the country. Pioneer Natural Resources recently shut its Eagle Ford drilling operations and is in the process of moving its personnel and equipment to its Permian operations, citing the low price market.

Those moves are not necessarily a bad thing. District 17 State Representative John Cyrier, who serves Bastrop, Caldwell, Gonzales, Karnes and Lee counties, said the slowdown is an opportunity for cities and counties to catch up.

"Let's hope that it's going to come back sooner than later, but we need to take advantage of this downtime" to improve infrastructure and fix roads, said Cyrier, who was elected in a special election in February 2015. "But also, while we're not just going like crazy and there's not these permits that are being thrown at us, let's take the time to figure out for the next wave where we're at and do it better. Let's be smart about this and get ahead of it this time."

That is something the city of Gonzales has continued to do despite the downturn. City Manager Allen Barnes said while some infrastructure had not been improved or worked on for decades, the influx in revenues allowed them to fix roads and keep working despite the bust.

"The influx of the Eagle Ford shale showed us the necessity of maintaining your infrastructure, improving your infrastructure," he said. "We've gone from 30 years of not paving a road to we've paid nine roads in the last three years. We have three more roads to pave this year."

Adjustments continue to flow down the pipeline. The Cuero EDC has already adjusted its budget. Cuero's school district is having to deal with a multimillion-dollar revenue shortfall and recapture from the Texas Education Agency at the same time. Kennedy said the best plan is to continue to be flexible.

"Do I have the crystal ball or whatnot? No, it's just that we've got to reflect as best we can," he said.



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