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In Texas, residents are riding out the latest oil bust

BIG LAKE — The week before Christmas, restaurant owner Terry Stevens warmly shook hands with oil workers and wished them a happy holiday as they walked out the door, some possibly for the last time.

Stevens, a 52-year-old Michigan transplant, moved to this West Texas outpost five years ago, before the latest oil boom. Workers flocked to the Mexican restaurant as well as the sports bar he and his wife own because of menus promising five-egg omelets and dragon-size hamburgers.

But now, with the price of oil plummeting and energy companies cutting back on activity, Stevens is experiencing his first oil bust. But the affable former Wal-Mart district manager, dressed in a Dallas Cowboys warmup, says he’s not too worried. He continues to be big on living in Big Lake, though he admits there is some uncertainty among residents about the future.

“The oil-field workers keep the lights on,” Stevens said, sitting back after providing roustabouts a hearty breakfast. “It’s in the back of your mind. We live in the oil field.”

Stevens is not alone. Residents in small oil towns across Texas are dealing with this latest bust, and while Big Lake has been insulated by continued drilling in the Permian Basin, economists aren’t painting a pretty picture for that region or other oil patches throughout the state.

The oil-field workers keep the lights on, Big Lake restaurant owner Terry Stevens

The rig count dropped by about 60 percent across Texas and in the Permian in 2015, according to Baker Hughes, the Houston oil-field services company.

Karr Ingham, an economist at the Texas Alliance of Energy Producers, predicted job losses in the state’s oil industry would hit at least 60,000 by year’s end — and that forecast was made before the price of oil took another step down after OPEC’s decision not to cut back on production. Oil recovered some losses on Thursday to close the year at $37.04 a barrel, after falling earlier in the month below $35, its lowest price in 11 1/2 years.

“The number of people in those towns for that purpose are going down and going down in a hurry,” Ingham said. “There will be fewer people employed than there are now.”

If oil prices don’t improve, industry observers expect that energy companies drowning in debt — typically those with big loans based on oil at more than $100 a barrel — will end up in bankruptcy. Many analyst don’t think oil prices will improve until the middle to latter part of 2016.

“In every boardroom there is sweat on the faces. This is a challenging time. It is very challenging,” said Ross Craft, CEO of Approach Resources in Fort Worth. Active in the Permian, Approach shut down drilling in August and laid off 30 percent of its staff. “It is time to hunker down.”

In every board room there is sweat on the faces. This is a challenging time. It is very challenging, Ross Craft, CEO of Approach Resources

But Pioneer Natural Resources, which opened a 100,000-square-foot multimillion-dollar office complex in Big Lake last year, believes in the town and the Permian. Pioneer has so much faith in the oil reserves there that it boosted its drilling budget to add rigs during the second half of 2015.

“We will be drilling there for decades and I wouldn’t be surprised if they are drilling wells there a hundred years from now,” said Tim Dove, president and chief operating officer at Pioneer.

Gloria Baggett, executive director of the Big Lake Economic Development Council, also isn’t ready to pull in the sidewalks.

Baggett is a self-described “West Texas girl” who moved to town 17 years ago, and her husband and sons work in the oil fields, so she is familiar with boom and bust cycles. She said the city is doing what it can to survive and thrive.

“It has slowed down somewhat, but we’re not dead by any stretch of the imagination,” Baggett said. “Big Lake has lived through many booms and busts and booms and busts.”

Related: Oil slump weighing on housing markets in Texas, North Dakota.

Living in an outpost

Big Lake has seen it all before, its fortunes rising and falling like the pump jacks on the horizon.

Located about 300 miles southwest of Fort Worth, the town is a windswept place along U.S. 67 that has been making its livelihood from oil since the 1920s when Santa Rita No. 1 was drilled just outside town, the first oil well to tap into rich Permian reserves.

Big Lake is like a distant outpost. The basics cost more because repairman and supplies have to come from Midland or San Angelo. Want a plumber? Add in a transportation charge. Blow a tire and bend a rim on a car? Good luck.

Traffic zooms through town on the state highway, going past a new industrial park on the eastern edge of town and the gaggle of small cabins posing as motels for the oil workers. A dusty film created by the sand trucks driving through town covers everything.

Big Lake has a Dairy Queen, a small grocery store, an Ace Hardware and a Dollar General. Just north of U.S. 67 is the Reagan County Courthouse, a Renaissance brick structure built in 1927. Nearby is a drive-through bank converted into a restaurant and an abandoned general store. On the ground floor of the old Masonic Hall is a dinky drugstore with an even smaller Christmas tree.

Big Lake is like a distant outpost. The basics cost more because repairmen and supplies have to come from Midland or San Angelo. Want a plumber? Add in a transportation charge. Blow a tire and bend a rim on a car? Good luck: The garages cater to trucks. Food costs more, with one oil worker saying he has paid as much as $9 for a pack of chicken. Milk has sold for $5 a gallon.

The sulfur-like smell in the air is a constant reminder that Big Lake is a hub for oil and gas exploration. Hemmed in by land owned by the University of Texas and the Rocker b Ranch, Big Lake is also at the crossroads of the Wolfcamp, Wolfcamp/Spraberry and Cline shale formations.

If you want to go to the movies, you have to drive to Midland or San Angelo about an hour away. And don’t go looking for a big lake in Big Lake for recreation. The city takes its name from one of the largest playas in Texas that once was fed by natural springs, but it has gone dry.

“Big Lake is not a bad place if you work all the time,” said Frank White, owner of AAA Testers, an oil-field services company, who has lived here for 36 years. “But I don’t bowl. I don’t golf.”

Yet Brandi Garner says Big Lake is a great place to raise a family. She lives with her son and husband, the county’s fire chief and emergency medical services director, behind the fire station. While the boom brought a lot of new people to town whom she doesn’t recognize, it has had its benefits.

“We got a Taco Bell and a Pilot out of it, so we’re good,” Garner said.

Smells like money

The sulfurlike smell in the air is a constant reminder that Big Lake is a hub for oil and gas exploration. Hemmed in by land owned by the University of Texas and the Rocker b Ranch, Big Lake is also at the crossroads of the Wolfcamp, Wolfcamp/Spraberry and Cline shale formations.

The city’s population has fluctuated along with activity in the oil fields. The population jumped from 100 to 2,000 in 1928 after the Santa Rita was drilled, but during the Depression dropped to fewer than 1,000. In the 1950s, people returned when the Spraberry was brought into production, powering a sustained oil boom that tripled the population by the 1970s. But in the 1990s the town slipped into a slow decline, seeing its population of 3,700 drop to about 2,900.

Then came the breakthroughs in horizontal drilling, hydraulic fracturing and the shale revolution. The major oil companies left the area in the 1980s, believing the Permian Basin to be “tapped out.” But fracking — injecting water, sand and chemicals underground to break apart shale rock to free trapped oil and gas — pumped new life into the Permian along with horizontal drilling, which allowed drillers to access fields that were difficult to work.

“It’s like a layer cake. You’ve got a bunch of rock formations stacked on top of each other that all have the potential to produce oil and gas. They proved that with the old vertical wells where fracking was not needed,” said Will Brackett, managing editor of the Powell Shale Digest, an industry newsletter in Fort Worth. “The Permian is the ultimate stack formation play.”

Even as rig counts dropped across the United States — Bloomberg News reported Thursday that companies searching for oil had idled the largest portion of their fleet since at least 1988 — drillers in the Permian and New Mexico added five rigs to boost the number to 217.

Dove said there are 12 or 13 shales on top of each other, all of them holding promise at the right price. His company added two rigs a month in July, August and September, when other companies were pulling out. It still has 18 rigs working in the Permian, with the bulk of them in the north outside of Midland.

“There is not a place in the United States that has this kind of inventory where you can measure it in decades,” Dove said.

Related: 2015 year in review: The boom went bust.

Boom and bust

Clearly, Big Lake has benefited from the recent shale oil revolution.

It’s hard to say exactly how many people live in Big Lake. The U.S. census estimated the population at 2,900 in 2010, but city officials and others say the population is now 5,000 with the daytime population hitting 12,000 when including workers who commute to town.

We were absolutely bulldozed with the amount of equipment, the people. Frank White, president, Big Lake Economic Development Corporation

“We were absolutely bulldozed with the amount of equipment, the people,” said White, who also serves as the president of the Big Lake Economic Development Corp.

Before the latest boom, Big Lake had two motels, one restaurant and two convenience stores. The city had not grown in years, its wastewater system was in serious need of an upgrade and affordable housing was limited. In 2010, the city collected about $1 million in sales taxes.

Now the city has six hotels, and a Best Western is under construction. At the height of the boom, hotel rooms were renting at $250 a night, with workers paying about $3,700 a month to rent one of the small cabins. One entrepreneur stacked shipping containers and called it a hotel.

After not growing for years, the city recently annexed about 900 acres on its eastern edge, taking in several oil-field businesses including Pioneer’s new headquarters, where about 140 people work. The sales taxes taken in by the city in 2014 were $2.2 million.

“We had to play catch-up in a hurry. … It hit us so suddenly,” Mayor Phil Pool said. “We heard stories of people sleeping in cars.”

Then, within the last year, companies began shutting down as the price of oil declined. The old sense of panic began to creep into the voices of people around town.

Big Lake, big dreams

One day last month, Danny Jones of Keller, a driver for Justin-based L.H. Chaney, was refueling his rig in the pre-dawn cold at the Pilot/Flying J as he prepared for another day of hauling drilling cuttings, or “mud.”

Jones stays in one of the shipping containers for weeks at a time before rotating home. Inside the container are two beds, a bathroom, a kitchenette with a hot plate and a big-screen TV. A double costs $79.99 a night, a single $69.99. It is a spartan existence.

While he has remained busy, Jones has noticed that activity is down. “The price of oil went down and it kind of gobbled up the business,” he said.

Councilman Melvin Davis, who works for Discovery Natural Resources, said that if oil prices continue to drop “people are going to leave because they are losing their jobs.”

Pool echoes Davis’ concerns, saying that the recently approved annexation didn’t add a lot to the city’s coffers, but it did keep revenue from falling off.

“What are we going to do with all of these hotel rooms when it all blows away?” he asked.

Like every gold rush in history, they start at some point and they will fail at some point. We’ll see it again, it’ll rise again. I hope it doesn’t take 20 years this time like last time. We’ll see it return. It’s not over with. Frank White

White and Baggett worry that the city leaders — who said the downturn will give the town a chance to catch its breath — will retreat too much. They want to see the city take steps to diversify, improve its housing stock and bring in more retail to stabilize the local economy.

They’ve already reached out to a company that plans to build windmills in the area to provide electricity to energy companies. A deal is in the works with a major retailer to locate there, and the development corporation just persuaded the city to back the building of a new Sonic.

“Now is the time to seize the moment,” Baggett said. “We have to look at sustainability.”

Sitting in his Ford Super Duty pickup at a drilling site, White is convinced that the oil boom will return and that the city needs to continue progressing, even if things slow down.

“Like every gold rush in history, they start at some point and they will fail at some point. We’ll see it again; it’ll rise again. I hope it doesn’t take 20 years this time like last time. We’ll see it return. It’s not over with,” he said.

At Pioneer, Dove said it’s not a matter of if oil prices improve, but when.

“It is a booming area because it all is associated with the horizontal drilling campaign that will continue for many, many years and that bodes well for Big Lake,” Dove said.

Back in town at his restaurant, Stevens is counting on it. Besides owning the two restaurants, Stevens operates a downtown laundromat and several rental properties. He’s also converting the only other bar in town into an entertainment center with a pool table and shuffleboard.

Stevens, whose wife, Lucy, is originally from Alpine, has no regrets about moving here five years ago.

He expresses his devotion to his customers and his customers do to him. They’ve stapled autographed $1 bills into the wood above his bar, a joke that they want reserved seating in his restaurant. He says the established oil companies “will ride the storm out.”

And Stevens says he will, too.

(c)2016 the Fort Worth Star-Telegram

This article was written by Max B. Baker from Fort Worth Star-Telegram and was legally licensed through the NewsCred publisher network.