Surviving the bust: The new reality

Rye Druzin By Rye Druzin

April 24, 2016 at midnight
Updated April 25, 2016 at 6 a.m.

In 2010, DeWitt County Judge Daryl Fowler warned a "tsunami" of activity was coming to the Eagle Ford. He called the imminent growth of the shale play "a game changer."

That call was the centerpiece of his successful run against 24-year incumbent judge Ben Prause.

Even Fowler was not prepared for the inland flood of landmen and leasing activity that started in 2010 and overwhelmed Cuero and DeWitt County.

Now into his second term, Fowler sat behind his desk, his alma mater's horned frog adorning his walls and computer screen.

"We're in a whole new paradigm," Fowler said with a smile.

The judge is not far from the truth. When Fowler took office in 2010, mineral interest values in DeWitt County had hit a low of $319 million, according to figures from the DeWitt County Appraisal District. By 2014, those same minerals would peak at $5.8 billion, a 1,700 percent increase.

A flood of investment, sales and property taxes filled the coffers of DeWitt County and its four municipalities of Cuero, Yoakum, Yorktown and Nordheim.

The windfall allowed the county to embark on ambitious infrastructure projects and the cities to bring their governments up to speed with pay and technology.

But the hustle and bustle of the boom did not last the 10 to 20 years that some experts had predicted and had told local governments.

In 2015, DeWitt County's mineral valuations had fallen by $800 million to $5 billion, reflecting the collapse in oil prices that began in 2014 and continued into the beginning of this year.

The worst bust in decades has forced the leaders within DeWitt County to reassess plans and budgets after four years of unrestricted revenue growth. Some are worried about how long - and how deep - this bust will cut.

The rise of the Eagle Ford

"When the Eagle Ford shale came along we had this inundation of filing of leases, recording of leases and then that phase went through," Fowler said. "Then you began to see filings in the district court, many oil related."

This deluge of landmen, whose job was to find the mineral's owners, overwhelmed county employees. Fowler said the county was operating on "shoestring budgets" at the time, with a $12 million 2010 county budget.

That shoestring budget grew rapidly to this year's $45 million. Fowler's primary goal was to improve infrastructure around the county, where only $2.5 million of his 2010 budget was slated for the road and bridge department.

In the last five years, the road and bridge department has spent $78 million on road repair, construction and equipment.

"It's just staggering, and nowhere in the time that I was running for office did I foresee that (the Eagle Ford) would reach the lofty height that it did," Fowler said.

But that prosperity came with a cost. A study commissioned in 2012 by the DeWitt County Commissioners Court found that one well completion was the equivalent of eight million passenger cars, Fowler said. That study stated that the northwest half of DeWitt County, accessed by 342 miles of county roads, was within the Eagle Ford Shale play and could be affected by oil development.

The survey added that, "the intended traffic for these low volume roads would primarily be passenger vehicles with a larger truck about twice a week."

"When you come in with drilling rigs on a road that was designed for a cattle trailer and grandma's Buick and those kinds of things, you have totally destroyed it with one rig move," Fowler said.

That study, carried out by engineer David Underbrink Sr. and prepared by Naismith Engineering, estimated that the cost of upgrading roads within the entire Eagle Ford to proper standards would be $432 million.

"When we heard that ($432 million figure), we all had one of those moments of, 'God, how are we going to do this?' with what we have as a tax base," Fowler said.

Infrastructure revival

Prior to that study and soon after he took office, Fowler was approached by Petrohawk, a company drilling in DeWitt County, to discuss possible infrastructure payments.

Fowler negotiated a contract with Petrohawk that would send the county $8,000 per drilled location to offset road damage.

Pioneer Natural Resources agreed to the same contract when they entered the area, and between Petrohawk's signing in 2010 and both contracts' expirations in 2012, $2.6 million was raised for road and bridge improvement.

Fowler negotiated the contracts partly due to his belief that the state would reap the benefits of mineral taxes, but not pay back into the infrastructure.

The boom brought different relationships to municipalities. City-owned land in Cuero with access to utilities was rented for man camps to the tune of $3,000 to $7,000 a month.

"The people didn't have a place to go and we just happened to have some available land with utilities, and they just jumped all over it to get there," said Raymie Zella, Cuero city manager.

The rent and growing sales tax revenues allowed Cuero to bring all of its administrative services under one roof in the former Rialto Theater building while taking on no new debt.

At the same time, the city's minimum wage was raised to $13.50 to try to keep up with attrition to the oil field.

Zella said RVs filled yards, and the city struggled to keep up with the growth.

Zella, who has almost 40 years of working in city government, said "When the oil boom hit in the '80s, it was not even comparable."

North of Cuero, Yoakum city manager Kevin Coleman and the City Council were wary of the rapid rise in sales tax receipts. Rather than grow the budget along with revenue, they stayed at the 3 percent increases they normally allocated.

"When we saw those big numbers hit, our council looked at that and said, 'You know, a lot of people have been burnt by the oil field,'" Coleman said.

Extra money was used for the city's "wish list," such as new flooring at the fire department and road work. Revenues saved from the boom will pay for the $1.2 million needed to switch the city over to "smart meters," a state requirement.

Coleman believes despite the council's prudence, there will be more pain to come.

"Cities are on the last leg of the increase, so cities are on the last leg of the decrease as well," he said.

Dealing with the bust

One of the Cuero man camps sits abandoned, while the fate of another two are uncertain. Zella said the city has lost rent to the tune of tens of thousands of dollars.

DeWitt County municipalities have lost between 25 and 50 percent of their sales tax revenue compared to the four months that started 2015.

DeWitt County's mineral valuations fell by $800 million in 2015, slightly offset by a $350 million rise in real estate and personal property values in the same year. But the drop in sales tax and mineral values is a worry to many across the 910-square-mile county.

Man camps in Yorktown are shuttered while oil rigs and equipment sit idle in fenced off lots. Yorktown city manager Robert Mendez said the scale and speed of the downturn caught many by surprise.

"Did we prepare?" Mendez asked. "We didn't see this downfall coming."

No layoffs are planned say all of the officials, but budgets are being cut or readjusted.

"People are important in that they are assets that a prudent person realizes they need," Fowler said.

Budgets and capital expenditures are getting a hard look and, in some cases, the axe.

For Yoakum, new ADA-compliant bathrooms in the city's community center now hinge on receiving a state grant, rather than using spare sales tax revenue.

Coleman believes Yoakum will survive by reverting back to pre-boom budget practices. Excess money from its utilities had bridged budget gaps, but during the boom, that money was saved for capital projects.

In Cuero, Zella said the city will defer building a $4 million to $5 million new library. Instead, the city will renovate the existing library for $1 million that was already set aside.

But his "worst case scenario" would be if sales tax revenue fell further, and then employees would have to be cut.

"That would be a worst case scenario to me, is having to lay some employees off," he said. "I don't anticipate that. If these numbers stay like they are or go any lower, when we get into budget for next year, there may be some hard decisions to make. But not in this budget."

Back in the DeWitt County courthouse, Fowler pulled up a Railroad Commission map of drilling in DeWitt County. Clicking across the screen, Fowler pointed to the empty spaces that filled up most of the map.

"(The Eagle Ford) is nowhere near finished," he said with a grin.



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