Regional News

Texas Energy Boom a Credit Positive

DALLAS — Development of the Eagle Ford Shale oil and gas-producing region of South Texas will have a $20 billion impact that is likely to boost credits for cities, counties and school districts in the area, researchers say.

The uplift in economic fortunes "is evident in part through increasing sales tax collections by local governments, a credit positive for South Texas issuers, including the 21 counties, cities and school districts rated by Moody's," Moody's Investors Service analyst James Hobbs wrote in a report last week.

"It's probably the biggest economic development in the state of Texas in our lifetimes," said Kenny DuBose, president of the Eaglefordshale.com website that tracks developments in the region.

For the municipal bond industry, the question is the role that long-term financing will play in a rural area with housing made up largely of "man camps," trailer parks and other temporary shelters.

"Our opinion is that this is a multi-decade development," said R.T. Dukes, an upstream oil and gas analyst for Oil & Gas Net. "As long as oil stays above $80 per barrel, this will continue to generate strong economic activity. The oil industry moves very fast and the real estate industry doesn't. It can take five years to build a neighborhood."

As the city that serves as the center of the energy play, San Antonio is seeing strong demand for services that will factor into its planning for years.

"We view the Eagle Ford activity as an economic opportunity of a lifetime," said Mario Hernandez, president of the San Antonio Economic Development Foundation. "The key goal is the increase in investment and jobs. And if the communities will partner with the private companies that are creating these jobs, it can be a win-win for everybody."

Earlier this month, the University of Texas at San Antonio's Institute for Economic Development released its study on the impact of the Eagle Ford play.

The study examined a 14-county region actively producing and extracting oil and natural gas and a six-county region experiencing non-production activities, including headquartering and refining.

In addition to the $20 billion in revenues generated, the study reported that the increased activity supported 38,000 full-time jobs and resulted in $2.6 billion in salaries and benefits paid to workers, $10.8 billion in gross regional product, $211 million in local government revenues and $312 million in state revenues.

The UTSA study used Texas Railroad Commission data that shows oil production in 2011 increased nearly seven times over 2010 production and gas production more than doubled.

U.S. Energy Information Administration data indicates the trend is continuing in 2012. Between January and March, drilling began on 856 new wells, more than double the 407 wells started during the same months in 2011.

The rise in traffic and wear and tear on the roads seems to be the biggest concern of many local landowners, the study said. Until pipelines can be built, producers are relying on trucks to transport oil and gas.

The UTSA study noted that over time, the shale activity will begin to decline, along with the population.

Researchers cited an example of faulty local investment in Mansfield, La., a community in the Haynesville Shale production area. Emboldened by the energy windfall, local officials spent their revenues on more than $6.3 million in annual bonuses for the school district, expensive football fields, and similar outlays, the report said.

"Once activity began to slow in response to decreasing natural gas prices, however, the community was soon unable to fill its hotels or populate its restaurants, and the school district was left with nice football fields but newfound difficulty funding the pension accounts of employees," UTSA researchers wrote.

Planners should keep a medium-to long-term perspective, the report advised.

"Easily repurposed buildings and temporary buildings may be one construction solution, as these allow for easy conversion from one use to another," the report said. "Sustainable infrastructure is also important — building better medical facilities, improving aesthetics locally and creating public attractions are some examples of ways that communities can increase their desirability."

For the city and school districts of San Antonio and Bexar County, the increased economic activity should lend support to credits that are already strong. San Antonio carries triple-A ratings on its general obligation bonds.

Earlier this month the city won easy voter approval of a record $596 million of general obligation bonds for a series of projects.

Officials have identified $2.2 billion in capital needs to be funded over the next 15 years, according to Standard & Poor's. Projects included in the 2007 bond program of $550 million were completed this month.

The Texas Transportation Commission, which supervises the Texas Department of Transportation, last month awarded almost $40 million to six TxDOT districts where roads have been affected by energy development.

The department also has a special task force to deal with transportation issues in the Eagle Ford, including the port facilities at Corpus Christi. Long-term, TxDOT's major development is Interstate 69, to connect towns and cities in the Rio Grande Valley with Corpus Christi, Houston and through East Texas to the Arkansas border.

The task force sees the Eagle Ford Shale projects developing over a 40-year timeline.

"If you were to tell me two or three years ago that something like this was going to evolve into what it has, I would've probably questioned it, if not certainly laughed at it," said Terry Retzloff, an Atascosa County native who owns a company in the Eagle Ford Shale. "It's pretty impressive."



Texas ,

Upcoming Events

Already a subscriber? Log in here
Please note you must now log in with your email address and password.