World Mining Exploration News

Energy economics Small cities not dependent on Barnett Shale bounties

The booming Barnett Shale production during the past five years has been a boon to some of North Texas’ sparsely populated yet gas-rich cities, but city officials said they aren’t counting their chickens before they hatch.

Bridgeport and Decatur are prime examples of the impact an industry can have on economic and community development. The former, a city of about 5,000 residents, hit it big in the 1950s when oil and gas were discovered, but it wasn’t until Mitchell Energy & Development Corp.’s technological advancements in the late 1990s solidified the Barnett Shale as a leading play, and Wise County as a major beneficiary.

Oklahoma City-based Devon Energy Corp. purchased Mitchell Energy in 2001 for $3.5 billion, and is a major player in the Barnett Shale, largely due to the massive amount of acreage it acquired early on in the outer reaches of the shale play, in Denton, Wise and Parker counties – often known as the “core area.”

Oil and gas is big business in Bridgeport; Devon Energy employs more than 500 people in North Texas, 350 of which are in Bridgeport, according to the city manager, making it the fourth-largest employer in the city, behind the Bridgeport Independent School District. The industry as a whole provides jobs for more than 600 residents. Comparatively, the city government employs 100

residents.

Devon Energy’s employees work out of a 57,000-square-foot office center, and the company recently received “Corporate Business Leader of the Year” from the Bridgeport Area Chamber of Commerce for its contributions to the community.

Meanwhile more than 80 other companies that participate in some way in the Barnett Shale have offices in Bridgeport, including EnCana Corp. and Weatherford International Ltd.

“Historically Bridgeport has been an oil and gas community, it’s not new to Bridgeport,” said William Myers, director of the Bridgeport Economic Development Corp., the city’s economic assistance and incentive agency. “[The city] has been very active in oil since the ‘50s or before,

so definitely some of our budgets are on oil and gas

revenues.”

Wise County received $72.5 million in tax revenue stemming from Barnett Shale-related companies in 2007, second only to Tarrant County’s $112.7 million, according to a March study conducted by economist Ray Perryman, director of Waco-based The Perryman Group. Denton and Parker counties received $37 million and $22 million, respectively.

Wise County has a population of about 57,600, according to the U.S. Census Bureau’s 2007 estimates. That’s less than 4 percent of the population of Tarrant County, yet it still receives more than 64 percent of the revenue Tarrant County does.

Times are good, but Myers said the city recognizes the cyclical nature of the industry – boom and bust and boom again.

“The Barnett Shale has been nice to the city of Bridgeport,” he said, “but by no means do we budget the majority of that revenue because we’ve seen increases in recent years. We budget very conservatively … Bridgeport has experienced an oil bust before, and we hope that the Barnett Shale is a different.”

Less than 50 percent of the gas money Bridgeport expects to receive in 2008 is budgeted toward projects, he said. In that way, unexpected drops – such as the past few months’ 50 percent plunge in natural gas prices – don’t tamper with city budgets or impede development – what Myers describes as a built-in “allowance for a downturn.”

“Drilling a well in Fort Worth is significantly more expensive than drilling a well in the country, and getting the pipeline access to that well is significantly less expensive in the country, so operators are better at turning a profit,” Myers said. “Since the price of gas has gone down, I’m sure there are some of those expensive wells that aren’t going to be produced. But the threshold for profit is a lot lower in the rural setting.”

About 10 miles east, Decatur similarly has benefitted from oil and gas drilling, but City Manager Brett Shannon said he hasn’t let it become the leg that keeps the table standing.

The total net taxable value within the city limits is $562 million; of that amount, between $35 million and $40 million is oil- and gas-related, he said.

“It’s great when things are going good, but you’ve got to be careful when things go bad,” Shannon said in reference to revenue it receives from industry-related activities. “If oil really does go into a slump, I [will] hardly notice it because my construction is up. But that doesn’t mean there won’t be some indirect effects … Strictly from a property tax standpoint I’m a little more diversified than others.”

All revenue earned from the industry goes into a street-improvement fund, so the city is “able to do street work without solely depending on tax dollars for the funding,” he said.

Recently, the city leased 20 acres of its wastewater plant site for drilling.

“It’s a nice check,” Shannon said of the royalty earnings.

The city of Weatherford also experienced a significant increase in oil and gas revenue. The city received $7.3 million in 2006 from mining/quarrying/oil and gas extraction-related activities, according to the Texas state comptroller’s office. Weatherford earned $30.4 million in 2007, a 318 percent increase in one year.

The Mansfield Independent School District was impacted in a different way by natural gas drilling.

The district had hoped to build several new schools to handle its booming population, but with the current glut of houses, many subdivisions have been canceled, and most of the land is set for natural gas drilling, according to news reports. Those new schools subsequently were shelved.

Still, the revenue Mansfield might earn from drilling could benefit it in the same way drilling impacted Bridgeport and Decatur.

While the money from natural gas drilling may line the cities’ pockets, Myers said it’s a different fact that impacts the city in a more positive way.

“Everybody always looks at the money, but the people who are related to the oil and gas industry, from the management down to the worker, are in the community,” Myers said. “In the big communities they might get washed out, but in the smaller communities … you know who they are, they’re wearing the EnCana hats or the Devon hats.”