US oil city hit by market gloom diversifies

US oil city hit by market gloom diversifies

Sunday, April 24, 2016 8:17 am

Oil rigs at Midland

Oil rigs at Midland

Sitting atop one of the most prolific oil-producing areas in the United States, “oil city” Midland in Texas is looking forward to a better future, in spite of the dull market since mid-2014.

“Midland’s economy still relies heavily on the oil and gas industry, but the city has diversified to become a regional telecommunications and distribution center,” said Bobby Burns, former Midland mayor and president of the city Chamber of Commerce.

The city, which is a gateway to the Permian Basin with a population of more than 120,000, is also known as former  home of former U.S. Presidents George H. W. Bush and his son, George W. Bush.

Since the city’s first oil boom in 1920s, Midland has experienced several rounds of boom and bust, and is now seeking to diversify its economy after the “shale revolution” in 2005, said Burns, who served three terms as the city mayor.

The “shale revolution” brought Midland a round of oil boom, after companies used hydraulic fracturing method to find shale. Midland is now the fastest growing metropolitan area in the country with new high-rise office buildings decorating its skylines.

The Permian Basin is one of the world’s largest oil-producing basins, bringing thousands of oil field workers and investors to Midland.

Although some companies have left for business reasons over the past years, Burns estimated that there are still some 1,000 such companies operating in the city. Located on the southern plain of the Lone Star state’s western area, Midland was originally founded as the midway point between El Paso and Fort Worth on the Texas and Pacific Railroad in 1881.

With the expansion of the Permian Basin, Midland was soon transformed into the administrative center of the West Texas oil fields.

Oil and gas production from the basin rapidly increased through the late 1940s, and Midland wooed a large number of oil investors and workers. Thirty-six oil companies had offices in Midland by 1929 and this figure increased to more than 200 by 1950. The population had nearly tripled in the years by 1960.

“However, Midland had experienced several busts from 1930s until now, each time some oil businesses folded and the city’s work force went unemployed,” said Burns. “This time, the impact is huge.”

Oil prices crashed from 107 dollars per barrel in June 2014 to around 40 dollars recently, and U.S. oil production has dropped by as much as 700,000 barrels a day. The number of rigs in the field has sunk to a historic low.

Echoing Bobby’s views, Kathy Shannon, executive director of the Permian Basin Petroleum Museum, said almost 90 percent of the city’s economy depends on oil industry, and a lot of people have lost their jobs when their companies downsized due to the impact of oil price cut.

In Texas, which produces 31 percent of the country’s crude oil, about 72,000 workers lost jobs in the energy industry in 2015, and the Texas Alliance of Energy Producers estimates that another 40,000 could lose jobs this year.

“It affects pretty much everyone in the town no matter what your business is,” said Shannon, who was born and grew up in Midland. “Some of my friends working for large companies here lost their jobs, or had drastic drop in their incomes.”

She said even the donation to the foundation of her museum was affected. After the bust comes, people can no longer afford new houses and cars, never mentioning travel or donation.

“The number of rigs here has dropped drastically. And if you drive along the highways near the city, you will see a lot of rigs just sitting there, not used. Usually, you can see a lot of people working there, but now it is empty,” Shannon said.

Texas, which is still home to 45 percent of the nation’s operating rigs, again led the way in another drop in the number of rigs actively drilling for crude as just 351 oil rigs are left nationwide recently.

By 2017, crude oil production is expected to average around 8 million barrels per day, nearly 1.5 million less than in 2015, according to the U.S. Energy Information Agency.

“A lot of companies are still losing money, but for the oil companies like Chevron, they are investing more,” said Burns.

“There is no industry like oil and gas industry whose swing of prices is so remarkable, and this swing will have big impact on our economy,” said Burns, “but I believe that when the prices reach 50 dollars or above 50 dollars per barrel, some companies will become strong again.”

“I think the cause of the falling prices is complicated, and as for the perspective, I see 2016 will still be a tough year but 2017 will be a much better one for us,” he said.

“I believe our city’s tomorrow will be much better than today, and our future will be bright because the city has done everything to improve our economy’s diversification in a long term,” Burns said.


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