Texas oil country sees the downturn coming

By BETSY BLANEY, Associated Press

MIDLAND, Texas - In the West Texas oil patch, they can see the downturn coming at them from miles away like a pickup truck kicking up a dust cloud on the horizon.

With crude dropping below $40 a barrel from a high of around $150 over the summer, oil and gas companies in the Lone Star State are cutting back on drilling, the layoffs are beginning, and the boom of the past few years appears to be drawing to a close.

The boom may not necessarily give way to a bust. But the days of plentiful jobs, big paychecks and shiny new pickups and SUVS seem to be numbered.

"It's been a good ride up, but we're bracing ourselves for the ride down," said Midland City Manager Courtney Sharp, who expects a drop in tax revenue next month because of slumping sales in the city of about 98,000.

Kevon Horst, 19, landed his first job over the summer in the booming West Texas oilfields when crude was selling for about $140 a barrel. Horst and about 20 others working a rig near Canadian, about 40 miles from the Oklahoma line, were laid off recently. Gone are his $2,000-a-week job and his apartment.

He and his girlfriend moved in with her mother, and he is struggling to keep up with the $500-a-month payments on his new truck.

"I'm in a bind with it," Horst said. "No one's hiring now."

Others in the Texas Panhandle and across the Permian Basin to the south, which produces 20 percent of the nation's oil, are finding themselves in similar straits.

While overall unemployment is still low in Texas oil towns - 3.1 percent in Midland and 3.7 percent in Odessa, or about half the national average - that could change if oil prices don't bounce back sometime soon.

Earlier this month, two of the nation's biggest oilfield service providers, Schlumberger Ltd. and Halliburton Co., both of Houston, said they would cut hundreds of jobs because oil and gas companies have scrapped many exploration and production projects.

"Everybody is feeling anxious about the future," said Ben Shepperd, executive vice president of the Permian Basin Petroleum Association.

Since the end of August, the number of active oil and gas rigs in the U.S. has dropped more than 20 percent, from 2,031 to 1,589 as of Jan. 9. No place has been hit harder during that span than Texas, which had 958 active rigs before prices tumbled but only 713 earlier this month, a 25 percent decline.

In Texas, independent operators account for 90 percent of the drilling.

"These are companies, whether privately held or publicly held, that do not have the deep pockets that the major companies have," said Alex Mills, president of the Texas Alliance of Energy Producers. "What they're doing is taking a very hard, second look at their prospects."

Drilling continues in many places because the contracts with the energy companies and landowners have yet to run out. Also, some oil companies hedged against a price drop and are positioned better than others to handle the downturn. But the fear is that once many of these contracts expire, they may not be renewed or renegotiated.

Industry experts said that until prices climb back to $70 per barrel or so, drillers may be unable to persuade lenders to give them the financing they need.

During the boom, the Permian Basin gained an estimated 26,000 new jobs - in energy and other fields - between 2000 and 2007.

Just a few months ago, it was nearly impossible to get a weekday hotel room in Midland or Odessa. Now anyone needing to make last-minute room reservations can do so with little trouble.

Homes usually sold within a month and commanded premium prices. Today, real estate values are slipping - especially for upper-end homes - and sales typically take up to three months.

Last July, Jed Heard boasted that sales at his Cadillac dealership in Midland were on pace to break a record set the year before, and it wasn't unusual for someone to pay for an SUV with $65,000 in cash. But sales have slipped 40 percent since October, he said.

"Credit is the biggest problem," he said. "It has been exacerbated by the downturn in oil prices, at least in Midland."

For Horst, who still hopes to again work on a drilling rig, that day can't come soon enough. He is making $10 an hour helping his grandfather repair furniture in Pampa.

"It's supposed to pick back up," he said of the oil industry. "We're just trying to get by the best we can. It's kind of hard."